FROM ONE CORPORATION TO ANOTHER: THE IMPACT OF THE 2018 TCJA ON DIVIDEND PAYMENTS

Abstract

Prior to 2018, foreign-source dividend income paid to a U.S. corporate shareholder was not deductible. For any foreign-source dividends, the U.S. corporate shareholder was only entitled to a foreign tax credit. The dividends received deduction, outlined in I.R.C. §§ 243 and 245, applies only to U.S.-source dividend income. As part of the 2018 Tax Cuts and Jobs Act (“the TCJA”), Congress added a new provision, I.R.C. § 245A, allowing U.S. corporate shareholders to claim a deduction for foreign-source dividends. The changes do not stop with foreign-source dividends. U.S.-source dividends were also impacted by the TCJA. This paper will address the overall changes that have occurred with the taxation of dividends under the TCJA using examples to illustrate the pre versus post Act impact.