A C Corporation has gross income of $500,000, operating expenses of $300,000, and dividends received from a 25%-owned domestic corporation of $100,000. What is the corporation's Dividends Received Deduction (DRD)?

Answer options:

$50,000

$60,000

$65,000

$100,000

How to approach this question

1. Identify ownership % (25%). 2. Determine Rate (20%-80% owned = 65% DRD). 3. Calculate DRD ($100k * 65% = $65k). 4. Check Taxable Income limit (TI > Div, so full DRD allowed).

Full Answer

C.$65,000✓ Correct

For a corporation owning between 20% and 80% of another corporation, the DRD is 65%. $100,000 * 65% = $65,000. The taxable income limitation does not apply because taxable income before DRD ($500k - $300k + $100k = $300k) is greater than the dividend.

Common mistakes

Using the 50% rate (for <20% ownership).

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