Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Question

Quizplus · Accepted Answer

Jazz Corporation's ownership percentage in Williams Corp is less than 20%, hence it can claim dividends received deduction equal to 50% of the dividend received.

Dividends Received Deduction = 50% x $10,000 = $5,000

However, Jazz Corporation has a taxable loss of $2,000 before the dividend received. Dividends received deduction cannot create a taxable loss. Hence, the dividends received deduction is limited to the extent of the taxable income, which is zero after considering the $10,000 dividend.

Final Dividends Received Deduction = $2,000 (taxable loss) + $5,600 (limited DRD) = $5,600

Jazz Corporation Owns 10% of the Williams Corp