qualified interest income
(1) Interest-related dividends (A) In general Except as provided in subparagraph (B), no tax shall be imposed under paragraph (1)(A) of subsection (a) on any interest-related dividend received from a regulated investment company which meets the requirements of section 852(a) for the taxable year with respect to which the dividend is paid. (B) Exceptions Subparagraph (A) shall not apply— (i) to any interest-related dividend received from a regulated investment company by a person to the extent such dividend is attributable to interest (other than interest described in subparagraph (E)(i) or (iii)) received by such company on indebtedness issued by such person or by any corporation or partnership with respect to which such person is a 10-percent shareholder, (ii) to any interest-related dividend with respect to stock of a regulated investment company unless the person who would otherwise be required to deduct and withhold tax from such dividend under chapter 3 receives a statement (which meets requirements similar to the requirements of subsection (h)(5)) that the beneficial owner of such stock is not a United States person, and (iii) to any interest-related dividend paid to any person within a foreign country (or any interest-related dividend payment addressed to, or for the account of, persons within such foreign country) during any period described in subsection (h)(6) with respect to such country. Clause (iii) shall not apply to any dividend with respect to any stock which was acquired on or before the date of the publication of the Secretary’s determination under subsection (h)(6). (C) Interest-related dividend For purposes of this paragraph— (i) In general Except as provided in clause (ii), an interest related dividend is any dividend, or part thereof, which is reported by the company as an interest related dividend in written statements furnished to its shareholders. (ii) Excess reported amounts If the aggregate reported amount with respect to the company for any taxable year exceeds the qualified net interest income of the company for such taxable year, an interest related dividend is the excess of— (I) the reported interest related dividend amount, over (II) the excess reported amount which is allocable to such reported interest related dividend amount. (iii) Allocation of excess reported amount (I) In general Except as provided in subclause (II), the excess reported amount (if any) which is allocable to the reported interest related dividend amount is that portion of the excess reported amount which bears the same ratio to the excess reported amount as the reported interest related dividend amount bears to the aggregate reported amount. (II) Special rule for noncalendar year taxpayers In the case of any taxable year which does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess reported amount for such taxable year, subclause (I) shall be applied by substituting “post-December reported amount” for “aggregate reported amount” and no excess reported amount shall be allocated to any dividend paid on or before December 31 of such taxable year. (iv) Definitions For purposes of this subparagraph— (I) Reported interest related dividend amount The term “reported interest related dividend amount” means the amount reported to its shareholders under clause (i) as an interest related dividend. (II) Excess reported amount The term “excess reported amount” means the excess of the aggregate reported amount over the qualified net interest income of the company for the taxable year. (III) Aggregate reported amount The term “aggregate reported amount” means the aggregate amount of dividends reported by the company under clause (i) as interest related dividends for the taxable year (including interest related dividends paid after the close of the taxable year described in section 855 ). (IV) Post-December reported amount The term “post-December reported amount” means the aggregate reported amount determined by taking into account only dividends paid after December 31 of the taxable year. (D) Qualified net interest income For purposes of subparagraph (C), the term “qualified net interest income” means the qualified interest income of the regulated investment company reduced by the deductions properly allocable to such income. (E) Qualified interest income For purposes of subparagraph (D), the term “qualified interest income” means the sum of the following amounts derived by the regulated investment company from sources within the United States: (i) Any amount includible in gross income as original issue discount (within the meaning of section 1273 ) on an obligation payable 183 days or less from the date of original issue (without regard to the period held by the company). (ii) Any interest includible in gross income (including amounts recognized as ordinary income in respect of original issue discount or market discount or acquisition discount under part V of subchapter P and such other amounts as regulations may provide) on an obligation which is in registered form; except that this clause shall not apply to— (I) any interest on an obligation issued by a corporation or partnership if the regulated investment company is a 10-percent shareholder in such corporation or partnership, and (II) any interest which is treated as not being portfolio interest under the rules of subsection (h)(4). (iii) Any interest referred to in subsection (i)(2)(A) (without regard to the trade or business of the regulated investment company). (iv) Any interest-related dividend includable in gross income with respect to stock of another regulated investment company. (F) 10-percent shareholder For purposes of this paragraph, the term “10-percent shareholder” has the meaning given such term by subsection (h)(3)(B).