Montrose Corporation is classified as a personal holding company. It is almost year- end. The company's taxable income and regular federal income tax liability are expected to be $100,000 and $21,000, respectively. The company will claim a $20,000 dividends- received deduction and earlier in the year paid $25,000 of dividends to its shareholders. How much in additional dividends must be paid to shareholders in order to avoid the personal holding company tax?

Question

Quizplus · Accepted Answer

To avoid the personal holding company tax, Montrose Corporation must distribute its undistributed personal holding company income (UPHCI). UPHCI is calculated as taxable income ($100,000) minus federal income tax ($21,000) and dividends-received deduction ($20,000), which equals $59,000. Since $25,000 has already been paid in dividends, an additional $34,000 must be paid to reach the $59,000 threshold, making the total dividends $59,000. Therefore, $74,000 ($25,000 already paid + $49,000 additional) must be paid in total.

Montrose Corporation Is Classified as a Personal Holding Company