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VMariaS [17]
3 years ago
6

In the current year, Crimson, Inc., a calendar C corporation, has income from operations of $180,000 and operating deductions of

$225,000. Crimson also had $30,000 of dividends from a 15% stock ownership in a domestic corporation. Which of the following statements is correct with respect to Crimson for the current year? a. Crimson’s NOL is $15,000. b. A dividends received deduction is not allowed in computing Crimson’s NOL. c. The NOL is carried back 3 years and forward 10 years by Crimson. d. Crimson’s dividends received deduction is $21,000. e. None of the above.
Business
1 answer:
Sergeu [11.5K]3 years ago
5 0

Answer:

The answer is: D) Crimson’s dividends received deduction is $21,000

Explanation:

The dividends received deduction (DRD) allows a company that earns dividends from another company, to deduct those earnings (dividends) from its income tax.

The three tiers of possible deductions are:

  1. If the company owns ≤20% of the second company, it can deduct 70% of the dividends received.
  2. If the company owns ˃20%  but ≤80% of the second company, it can deduct 80% of the dividends received.
  3. If the company owns ˃80% of the second company, it can deduct 100% of the dividends received.

Since Crimson owned 15% of the second company, then it can deduct 70% of the dividends it received, which equals $21,000 ($30,000 x 70%).

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