Identify which of the following statements is true.
A)P Corporation receives a dividend from its 100%-owned subsidiary corporation S. P and S have filed consolidated tax returns for a number of years. The dividend payment is out of S's earnings and profits and reduces P's investment in S. The dividend is an intercompany transaction and excluded from P's gross income.
B)The consolidated dividends-received deduction percentage for dividends received by one affiliated group member from another affiliated group member is always 100%.
C)The dividends-received deduction claimed when a $50,000 dividend is received from a 100%-owned nonconsolidated life insurance company is $35,000 (ignoring any dividends-received deduction limitations).
D)All of the above are false.

Question

Quizplus · Accepted Answer

The dividend described is an intercompany transaction within a consolidated tax return group, which means it is eliminated in consolidation and not included in the parent company's gross income. This is a standard treatment under U.S. tax law to avoid double taxation within a group that files a consolidated return.

Identify Which of the Following Statements Is True