Title 26: Internal Revenue
PART 1—INCOME TAXES
credits allowable under sections 30 through 45D
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§ 1.34-2 Limitations on amount of credit.
(a) Under section 34(b) the credit may not exceed the lesser of either—
(1) The amount of the tax imposed by chapter 1 of the Code for the taxable year reduced by the foreign tax credit allowable under section 33, or
(2) Whichever of the following is applicable:
(i) In the case of a taxable year ending before January 1, 1955, or beginning after December 31, 1963, 2 percent of the taxable income for such taxable year;
(ii) In the case of a taxable year ending after December 31, 1954, and beginning before January 1, 1964, 4 percent of the taxable income for such taxable year. In the case of a taxpayer who computes his tax under section 3 or who uses the standard deduction provided by section 141, the taxable income for the taxable year is the adjusted gross income for the taxable year reduced by the standard deduction prescribed in section 141 and the deductions for personal exemptions provided in section 151. Where the alternative tax on capital gains is imposed under section 1201(b), the taxable income for such taxable year is the taxable income as defined in section 63, which includes 50 percent of the excess of net long-term capital gain over net short-term capital loss.
(b) The application of the limitations in paragraph (a) of this section may be illustrated by the following example:
Example. Assume the following facts in the case of an individual whose taxable year is the calendar year:
1954
Computation of tax liability without regard to the dividend received credit:
(1) Gross income............................................ $7,500(2) Deductions.............................................. 2,900(3) Taxable income.......................................... 4,600(4) Income tax liability.................................... 996(5) Foreign tax credit...................................... 16(6) Income tax liability minus foreign tax credit........... 980
| Computation of limitation under section 34(b)(1):
|
(7) Dividends for which credit is allowable................. $2,500(8) Dividends received credit under section 34(a); 100 (2,500x0.04)...............................................(9) Dividends received credit, as limited by section 100 34(b)(1); (item (6) or item (8) whichever is lesser).......
| Computation of limitation under section 34(b)(2):
|
(10) Taxable income......................................... $4,600(11) Dividends received credit under section 34(b)(2); 92 (4,600x0.02)...............................................
| Dividends received credit allowable:
|
Item (6), item (9), or item (11), whichever is lesser....... $92
|
1955 Computation of tax liability without regard to the dividend received credit:
|
(12) Gross income........................................... $7,500(13) Deductions............................................. 2,900(14) Taxable income......................................... 4,600(15) Income tax liability................................... 996(16) Foreign tax credit..................................... 816(17) Income tax liability minus foreign tax credit.......... 180
| Computation of limitation under section 34(b)(1):
|
(18) Dividends for which credit is allowable................ $2,500(19) Dividends received credit under section 34(a); 100 (2,500x0.04)...............................................(20) Dividends received credit as limited by section 100 34(b)(1); (item (17) or item (19) whichever is lesser).....
| Computation of limitation under section 34(b)(2):
|
(21) Taxable income......................................... $4,600(22) Dividends received credit under section 34(b)(2); 184 (4,600x0.04)...............................................
| Dividends received credit allowable:
|
Item (17), item (19), or item (22), whichever is lesser..... $100
