net capital gain
(11) Dividends taxed as net capital gain (A) In general For purposes of this subsection, the term “net capital gain” means net capital gain (determined without regard to this paragraph) increased by qualified dividend income. (B) Qualified dividend income For purposes of this paragraph— (i) In general The term “qualified dividend income” means dividends received during the taxable year from— (I) domestic corporations, and (II) qualified foreign corporations. (ii) Certain dividends excluded Such term shall not include— (I) any dividend from a corporation which for the taxable year of the corporation in which the distribution is made, or the preceding taxable year, is a corporation exempt from tax under section 501 or 521, (II) any amount allowed as a deduction under section 591 (relating to deduction for dividends paid by mutual savings banks, etc.), and (III) any dividend described in section 404(k). (iii) Coordination with section 246(c) Such term shall not include any dividend on any share of stock— (I) with respect to which the holding period requirements of section 246(c) are not met (determined by substituting in section 246(c) “60 days” for “45 days” each place it appears and by substituting “121-day period” for “91-day period”), or (II) to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. (C) Qualified foreign corporations (i) In general Except as otherwise provided in this paragraph, the term “qualified foreign corporation” means any foreign corporation if— (I) such corporation is incorporated in a possession of the United States, or (II) such corporation is eligible for benefits of a comprehensive income tax treaty with the United States which the Secretary determines is satisfactory for purposes of this paragraph and which includes an exchange of information program. (ii) Dividends on stock readily tradable on United States securities market A foreign corporation not otherwise treated as a qualified foreign corporation under clause (i) shall be so treated with respect to any dividend paid by such corporation if the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States. (iii) Exclusion of dividends of certain foreign corporations Such term shall not include— (I) any foreign corporation which for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a passive foreign investment company (as defined in section 1297 ), and (II) any corporation which first becomes a surrogate foreign corporation (as defined in section 7874(a)(2)(B)) after the date of the enactment of this subclause, other than a foreign corporation which is treated as a domestic corporation under section 7874(b). (iv) Coordination with foreign tax credit limitation Rules similar to the rules of section 904(b)(2)(B) shall apply with respect to the dividend rate differential under this paragraph. (D) Special rules (i) Amounts taken into account as investment income Qualified dividend income shall not include any amount which the taxpayer takes into account as investment income under section 163(d)(4)(B). (ii) Extraordinary dividends If a taxpayer to whom this section applies receives, with respect to any share of stock, qualified dividend income from 1 or more dividends which are extraordinary dividends (within the meaning of section 1059(c) ), any loss on the sale or exchange of such share shall, to the extent of such dividends, be treated as long-term capital loss. (iii) Treatment of dividends from regulated investment companies and real estate investment trusts A dividend received from a regulated investment company or a real estate investment trust shall be subject to the limitations prescribed in sections 854 and 857.