Smith Corporation,a U.S.C corporation,owns 25% of Avanti Corporation,an Italian corporation that earns all of its income in Europe.Smith Corporation will not be allowed a deduction for dividends received from Avanti.

Question

Quizplus · Accepted Answer

The statement is false. Under the U.S. tax code, a domestic corporation may be allowed to claim a deduction on dividends received from a foreign corporation in which it owns at least 10% of the voting stock. This is known as the foreign dividend received deduction. The availability and amount of the deduction, however, depends on various factors such as the type of income earned by the foreign corporation and the taxpayer's tax bracket.