Question

Eagle Corporation, a calendar year corporation, owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction. In the current year, Hawk Corporation Days Eagle a dividend of $130,000, which was considered in Calculating the $100,000. What amount of dividends received deduction may Eagle daim it it owns 15% of Hawk's stock? a. $50,000 b. 365.000 Oc. so d. $84,500 e. None of these choices are correct

Answer 1

The Dividends Received Deduction, or DRD, is a tax deduction that C corporations receive on the dividends distributed to them by other companies whose stock they own. As a C corporation's equity interest in a dividend-paying company increases, so does the amount of the DRD as shown below:

Percent Ownership		Dividends Received Deduction
< 20%		70%
20 - 80%		80%
> 80%		100%

Also, if the DRD creates or increases a net operating loss, the taxable income limitations do not apply.

Here DRD 130,000 if reduced from taxable income of 100,000 it creates net operating losses hence no restriction on DRD will apply and full deduction of Dividend received will be allowable as deduction i.e. 130,000

Since no option of 130,000 given in multiple choice hence answer is "e - none of the above choice is correct"