ExpertHard1 markMultiple Choice
CPA · Question 40 · Area 4: Entity Taxation
Corp A owns 25% of Corp B. Corp A received ,000 in dividends from Corp B. Corp A's taxable income before the DRD is ,000. What is the Dividends Received Deduction (DRD)?
Corp A owns 25% of Corp B. Corp A received ,000 in dividends from Corp B. Corp A's taxable income before the DRD is ,000. What is the Dividends Received Deduction (DRD)?
Answer options:
A.
,000
B.
,500
C.
,250
D.
,000
How to approach this question
1. Determine Rate (50%, 65%, 100%). 2. Calculate Tentative DRD (Rate x Div). 3. Calculate Income Limit (Rate x Income). 4. Check 'Loser' Rule: Does Tentative DRD create an NOL? If yes, take full Tentative DRD. If no, take lesser of Tentative or Limit.
Full Answer
B.,500✓ Correct
Since Corp A owns 25%, the DRD rate is 65%. Tentative DRD = ,500. Taxable income limit = ,000 * 65% = ,250. However, deducting ,500 from ,000 results in a loss (,500). Because it creates an NOL, the taxable income limitation does not apply.
Common mistakes
Failing to check if the full DRD creates an NOL.
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