Columbia,Inc.,a U.S.corporation,receives a $150,000 cash dividend from Starke,Ltd.Columbia owns 15% of Starke.Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P.What is Columbia's gross income related to the Starke dividend?

Question

Quizplus · Accepted Answer

Columbia's gross income includes the cash dividend received plus the foreign tax deemed paid. The foreign tax deemed paid is calculated as $150,000 (dividend) / $2,000,000 (E&P) * $750,000 (foreign taxes) = $56,250. Therefore, the gross income is $150,000 + $56,250 = $206,250.