Question

In each of the following independent situations, determine the dividends received deduction for 2018. 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)	(800,000)	(910,000)
Qualifying dividends	100,000	100,000	100,000

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

Answer

Step 1
(1)70% × $100,000 (dividend received) $70,000
(2)70% × $100,000 (dividend received) $70,000
(3)70% × $100,000 (dividend received) $70,000

Step 2
(1)70% × $200,000 (taxable income before DRD) $140,000
(2)70% × $50,000 (taxable income before DRD) $35,000
(3)70% × $90,000 (taxable income before DRD) $63,000

Step 3
Lesser of Step 1 or Step 2 (1)$70,000 (3)$63,000
Generates a net operating loss (use Step 1) (2)$70,000

1.Consequently, the dividends received deduction for Almond Corporation is $70,000 under the general rule.

2.Blond Corporation also claims a dividends received deduction of $70,000 because a net operating loss results when the Step 1 amount ($70,000) is subtracted from 100% of taxable income before DRD ($50,000).

3.Cherry Corporation, however, is subject to the taxable income limitation and is allowed only $63,000 as a dividends received deduction.