Deficiency Dividend Law and Legal Definition

Deficiency dividend is a dividend paid to reduce or avoid personal holding company tax in a prior year. Federal law defines the term deficiency dividends as “the amount of the dividends paid by the corporation on or after the date of the determination and before filing claim, which would have been includible in the computation of the deduction for dividends paid for the taxable year with respect to which the liability for personal holding company tax exists, if distributed during such taxable year.” [26 USCS § 547]