Sec. 3-9.5. Corporate stockholder's treatment of distribution and capital of a DISC

Tax Law, § 208(8-A) and (9)(a)

(a) Since a DISC is not subject to tax on its earnings and profits, no deduction is allowed for the dividends distributed to a corporation owning stock of a DISC. Any amounts deemed distributed from a DISC or a former DISC which are taxable as dividends pursuant to subsection (b) of section 995 of the Internal Revenue Code shall be treated as business income.

(b) Any actual distribution from a DISC or a former DISC must be treated as business income. However, an actual distribution, which for Federal income tax purposes, is treated as being made out of “other earnings and profits,” must be treated as either subsidiary income or investment income.

(c) Any gain recognized for Federal income tax purposes on the disposition of stock in a DISC or a former DISC must be treated as business income.

(d) Investments in the stocks, bonds or other securities of a DISC or any indebtedness from a DISC must be treated as business capital.