Sparks Corporation receives a dividend of $100,000 from Jill Corporation, a C corporation. Sparks owns 70% of Jill Corporation stock. Sparks' dividends-received deduction is $65,000.

Question

Quizplus · Accepted Answer

The dividends-received deduction for a 70% owned C corporation is 70% of the dividend received, which would be $70,000, but it is limited to 50% of Sparks' taxable income in order to prevent the deduction from creating or increasing a net operating loss. Since the deduction is given as $65,000, we know that Sparks' taxable income is at least $130,000.

Sparks Corporation Receives a Dividend of $100,000 from Jill Corporation