Question

In each of the following independent situations, determine the dividends received deduction. Assume that none of the corporate shareholders owns 20% or more of the stock in the corporations paying the dividends.

Almond Corporation Blond Corporation Cherry Corporation Income from operations $700,000 $800,000 $900,000 Expenses from operations (600,000) (850,000) (910,000) Qualifying dividends 100,000 100,000 100,000

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a. The dividends received deduction for Almond Corporation is $. b. The dividends received deduction for Blond Corporation is $. c. The dividends received deduction for Cherry Corporation is $.

Answer 1

(a)	Dividend received deduction for Almond Corporation	$       70,000
(b)	Dividend received deduction for Blond Corporation	$       70,000
(c)	Dividend received deduction for Cherry Corporation	$       63,000
		Almond Corporation	Blond Corporation	Cherry Corporation
	Step I
	70% X Dividend received	$       70,000	$       70,000	$       70,000
		($1,00,000 X 70%)	($1,00,000 X 70%)	($1,00,000 X 70%)
	Step II
	70% X Taxable income before DRD (W.N.1)	$   1,40,000	$       35,000	$       63,000
	(DRD = dividend received deduction)	($2,00,000 X 70%)	($50,000 X 70%)	($90,000 X 70%)
	Step III
	Lesser of I or II generates operating loss	$       70,000	$       70,000	$       63,000
	The dividend received deduction for Almond corporation is $70,000 under general rule. Blond corporation will also claim dividend received dedution of $70,000 because a net operating loss results when the step I amount of ($70,000) is deducted from 100% taxable income before DRD of ($50,000). Cherry corporation, subject to taxable income limitation is allowed only $63,000 as a dividend received deduction.
	(W.N.1) :
		Almond Corporation	Blond Corporation	Cherry Corporation
	Income from operations	$   7,00,000	$   8,00,000	$   9,00,000
Less:	Expenses from operations	$   6,00,000	$   8,50,000	$   9,10,000
Add:	Qualifying dividends	$   1,00,000	$   1,00,000	$   1,00,000
	Taxable income before DRD	$   2,00,000	$       50,000	$       90,000