Question

Assume U.S 2018 tax rules apply.

A-Co, Inc has acquired a 40% interest in New-Co, Inc. as a result of its deal exiting out of the Northeastern market. New-Co, Inc. operates in the Southwest, where A-Co, Inc. is seeking to expand its operations of fast food chains. New-Co is expecting to pay out dividends in at around $1 million each year, as it has done so in previous years. (of which A-Co will receive 40% dividend)

  A. What is the dividends received deduction (percentage and actual amount assuming he 1 million dividends holds).

B.What code section is the primary source of the dividends received deduction?

Answer 1

According to the U.S. 2018 tax laws if a comoany receives dividends from another copany , it can be deucted in order to avoid the taxation 3 times. The percentage of deduction for the year 2018 is as follows.

If the percentage of interest in the company is less than 20% - 50% of deduction

If the percentage of interest in the company is more than 20%and less than 80% - 65% of deduction

If the percentage of interest in the company is more than 80% - 100% of deduction

a) IN the given scenario, A co inc acquired 40% of interest in New Co. which is more than 20% and so it is eligible foe the deduction of 65%.

Dividend for A co Inc = $1,000,000 *40% = $400,000

65% of deduction = $400,000 = $260,000

Hence A co Inc will get a deduction of $260,000

b) §243 is the code section for dividends received deduction