Question

Myer Inc. received a $200,000 dividend from stock it held in Huckabee Corporation. Myer’s taxable income is $2,100,000 before deducting the dividends received deduction (DRD), a $40,000 NOL carryover and a $100,000 charitable contribution.

a. What is Myer’s deductible DRD assuming it owns 10 percent of Huckabee Corporation?

b. What is Myer’s DRD assuming it owns 60 percent of Huckabee Corporation?

c. What is Myer’s DRD assuming it owns 85% of Huckabee Corporation (and is part of the same affiliated group)?

Answer 1

There are three tiers of possible deductions.

First, when DRD is equal to 70% of the dividend received.

Second, if the company receiving the dividend owns more than 20% but less than 80% of the company paying the dividend, the DRD is 80% of the dividend received.

Finally, if the company receiving the dividend owns more than 80% of the company paying the dividend, the DRD is 100% of the dividend.

Accordingly,

Part a. DRD would be 70% of $200,000 dividend received i.e. $1,40,000

Part b. DRD would be 80% of $200,000 dividend received i.e. $ 1,60,000

Part c. DRD would be 100% i.e. $200,000 dividend