Question

Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 65% of Bronze stock (assuming Copper's dividends received deduction is not limited by its taxable income)? (Points : 5)
a. $0
b. $105,000
c. $120,000
d. $150,000
e. None of the above

Answer 1

Answer:

C) $120,000

Explanation:

Since Copper corporation owns 65% of Bronze Corporation, its dividends received deduction (DRD) is 80% of the dividends received.

• stake at another corporation is less than 20%, DRD = 70%
• stake at another corporation is between 20% to 80%, DRD = 80% (Copper's case)
• stake at another corporation is higher than 80%, DRD = 100%

Therefore, if Copper received $150,000 in dividends from Bronze, it can deduct 80% of that amount = 80% x $150,000 = $120,000