In its current taxable year, Mockingbird Corporation (a calendar year taxpayer) incurs the following income and expenses. $$\begin{array} { l r }
\text { Gross income from operations } & \$ 1,900,000 \
\text { Expenses from operations } & 2,000,000 \
\text { Dividends from Hummingbird Corporation } & 400,000
\end{array}$$ Mockingbird Corporation owns 10% of the stock of Hummingbird Corporation.The dividends received deduction is:

Question

In its current taxable year, Mockingbird Corporation (a calendar year taxpayer) incurs the following income and expenses. $$\begin{array} { l r } 
\text { Gross income from operations } & \$ 1,900,000 \
\text { Expenses from operations } & 2,000,000 \
\text { Dividends from Hummingbird Corporation } & 400,000
\end{array}$$ Mockingbird Corporation owns 10% of the stock of Hummingbird Corporation.The dividends received deduction is:

Quizplus · Accepted Answer

The dividends received deduction (DRD) for a corporation owning less than 20% of another corporation is 50% of the dividends received. Therefore, the DRD is 50% of $400,000, which is $200,000. However, due to the taxable income limitation, the deduction is limited to the lesser of 50% of dividends received or 50% of taxable income before the DRD. Since Mockingbird has a loss from operations, the full $200,000 can be deducted.

In Its Current Taxable Year, Mockingbird Corporation (A Calendar Year