ExpertMedium1 markMultiple Choice
CPA · Question 46 · Area II: Entity Tax Compliance
A C Corporation owns 15% of Domestic Corp. It receives a $10,000 dividend. The C Corp's taxable income before the DRD is $8,000. What is the Dividends Received Deduction (DRD)?
A C Corporation owns 15% of Domestic Corp. It receives a $10,000 dividend. The C Corp's taxable income before the DRD is $8,000. What is the Dividends Received Deduction (DRD)?
Answer options:
A.
$5,000
B.
$4,000
C.
$6,500
D.
$8,000
How to approach this question
1. Determine Rate: <20% ownership = 50% DRD. 2. Calculate Tentative DRD: $10,000 * 50% = $5,000. 3. Calculate Income Limit: $8,000 * 50% = $4,000. 4. DRD is lesser of Tentative or Limit (unless Tentative creates NOL). $4,000.
Full Answer
B.$4,000✓ Correct
B
IRC §243. For <20% ownership, DRD is 50%. Limitation is 50% of Taxable Income ($8,000 * 0.5 = $4,000). Since $4,000 < $5,000, the deduction is limited to $4,000.
Common mistakes
Forgetting the taxable income limitation.
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