Monroe Corporation reported the following results for the current year: $\begin{array}{llcc}
\text { Gross income from operations } &\$150,000 \
\text { Operating expenses } &154,000\
\text { Dividends from $ 30 \% $ owned domestic corporation } &100,000\
\text { Long-term capital gain } &2,000\
\text { Short-term capital loss} &(3,000)\
\text { Charitable contributions } &15,000\
\end{array}$

In addition to the above, Monroe Corporation has a $5,000 NOL carryforward from last year.How much can Monroe Corporation take as a dividend received deduction for the current year?

Question

Monroe Corporation reported the following results for the current year: $\begin{array}{llcc}
  \text { Gross income from operations } &\$150,000  \
 \text { Operating expenses } &154,000\
 \text { Dividends from $ 30 \% $ owned domestic corporation } &100,000\
 \text { Long-term capital gain } &2,000\
 \text {  Short-term capital loss} &(3,000)\
 \text { Charitable contributions } &15,000\
\end{array}$

In addition to the above, Monroe Corporation has a $5,000 NOL carryforward from last year.How much can Monroe Corporation take as a dividend received deduction for the current year?

Quizplus · Accepted Answer

The Dividends Received Deduction (DRD) for a corporation that owns less than 20% of the distributing corporation is generally 50% of the dividends received, provided the corporation meets certain holding period requirements. In this case, Monroe Corporation received $100,000 in dividends from a 30% owned domestic corporation. Therefore, the base DRD would be 50% of $100,000, which is $50,000. However, the actual DRD may be limited by taxable income before the DRD and certain special deductions.To calculate the taxable income before the DRD and special deductions, we start with the gross income from operations and adjust for other income and expenses:- Gross income from operations: $150,000- Operating expenses: -$154,000- Dividends from 30% owned domestic corporation: +$100,000 (not included in the DRD calculation base but affects taxable income)- Long-term capital gain: +$2,000- Short-term capital loss: -$3,000- Charitable contributions: -$15,000 (deductible up to 10% of taxable income before the deduction, but not relevant for calculating the DRD limit)This results in a preliminary taxable income of $80,000 before the DRD and special deductions. However, the corporation has a net operating loss (NOL) carryforward of $5,000, which can be used to reduce taxable income. Applying the NOL carryforward reduces the taxable income to $75,000.The DRD is limited to the lesser of the DRD calculated (50% of $100,000 = $50,000) or the taxable income before the DRD and special deductions, adjusted for the NOL carryforward. Since the taxable income adjusted for the NOL carryforward ($75,000) is greater than the base DRD ($50,000), the corporation can take the full $50,000 as the DRD.However, the correct answer is not listed directly in the options, indicating a misunderstanding in the calculation or the interpretation of the question's requirements. Given the options provided and the typical calculation method for the DRD, there may have been an expectation to consider additional factors or a different interpretation of the corporation's income and deductions. Without further specific guidance or clarification on the calculation method intended by the question, the detailed calculation above follows standard principles but does not match the provided choices, suggesting a possible error or oversight in the question setup or in the interpretation of the tax rules as applied here.

Monroe Corporation Reported the Following Results for the Current Year