Cordeio, Inc. is a controlled foreign corporation (CFC) for the entire tax year. Yancy Company, a...

Cordeio, Inc. is a controlled foreign corporation (CFC) for the entire tax year. Yancy Company, a U.S. corporation, owns 70% of Cordeio's one class of stock for the entire year. Subpart F income is $470,000, and no distributions have been made during the year. Both entities use the calendar tax year.

Assume a 365-day year and not a leap year. Round any division to six decimal places and use in subsequent computations. Round your final answers to the nearest dollar.

a. What amount does Yancy include in gross income as a constructive dividend for the tax year?
$

b. Assume that Cordeio is a CFC until March 1 of the calendar tax year. What amount does Yancy include in gross income as a constructive dividend for the tax year?
$

Solutions

Expert Solution

It is a concept in U.S. taxation in which various distributions to shareholders are not labeled as dividends but are still considered dividends by the IRS and taxed as such. Constructive dividends are most commonly found in companies in which the employees are also the shareholders. You can think of a constructive dividend as an undeclared dividend by the company that involves the use of corporate assets.

a. What amount does Yancy include in gross income as a constructive dividend for the tax year?

Yancy Company, a U.S. corporation, owns 70% of Cordeio, Inc. one class of stock for the entire year. Subpart F income is $470,000, and no distributions have been made during the year.

The amount that Vancy include in gross income as a constructive dividend for the tax year
= 70% * $470,000 = $329000

b. Assume that Cordeio is a CFC until March 1 of the calendar tax year. What amount does Yancy include in gross income as a constructive dividend for the tax year?

Assume that Cordeio is a CFC until March 1 of the calendar tax year. also assume that it is not a leap year, therefore time till March 1 = 31
(January) + 28 (February) = 59 days
The amount that Vancy include in gross income as a constructive dividend for the tax year
= 70% * $470,000 * (59 days /365 days)
= 70% * $470000 * 0.1616
= $653166.4 or $53166 (rounding off to nearest dollar)

ekkarill92 answered 11 months ago

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