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Practice CPA®CPA TCP Practice ExamQuestion 37

Easy1 markMultiple Choice

Area 3: Entity Tax ComplianceTCPEntity TaxC Corporation

CPA · Question 37 · Area 3: Entity Tax Compliance

A C Corporation owns 85% of a subsidiary. The subsidiary pays a dividend of $100,000 to the parent. What is the Dividends Received Deduction (DRD)?

Answer options:

A.

$50,000 (50%)

B.

$65,000 (65%)

C.

$85,000 (85%)

D.

$100,000 (100%)

How to approach this question

1. Identify Ownership %: 85%.<br/>2. Identify DRD Tier: <br/> - < 20%: 50% DRD.<br/> - 20% - <80%: 65% DRD.<br/> - 80%+: 100% DRD.<br/>3. Result: 100% deduction.

Full Answer

D.$100,000 (100%)✓ Correct

D

Since the ownership exceeds 80%, the corporation qualifies for the 100% Dividends Received Deduction.

Common mistakes

Using the 65% rate.

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