A C corporation owns 25% of the stock of another domestic corporation. The C corporation received $100,000 in dividends from this investment. The C corporation's taxable income before the dividends-received deduction (DRD) is $200,000. What is the amount of the DRD?

Answer options:

$50,000

$100,000

$65,000

$80,000

How to approach this question

DRD Tiers: <20% own = 50% DRD. 20%-<80% own = 65% DRD. >=80% own = 100% DRD.

Full Answer

C.$65,000✓ Correct

Since the corporation owns 25% (which is between 20% and 80%), the applicable Dividends-Received Deduction (DRD) percentage is 65%. $100,000 * 65% = $65,000.

Common mistakes

Using the old 80% rate or the 50% rate for small ownership.

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