Jazz Corporation owns 50 percent of the Mitchell Corporation stock. Mitchell distributed a $16,000 dividend to Jazz Corporation. Jazz Corporations taxable income before the dividend was $100,600. What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation?

Question

Quizplus · Accepted Answer

The dividends received deduction for a corporation that owns less than 20 percent of the stock of the paying corporation is 50 percent of the dividend received. However, because Jazz Corporation owns more than 20 percent but less than 80 percent of the Mitchell Corporation stock, it is entitled to a dividends received deduction equal to the percentage of the dividend received that is equal to 70 percent of the dividend multiplied by the lesser of (1) Jazz Corporation's taxable income before the dividend deduction or (2) the portion of Mitchell Corporation's taxable income that is equal to the dividend paid. Thus, the deduction is $10,400 ($16,000 x 0.5 x 70 percent).

Jazz Corporation Owns 50 Percent of the Mitchell Corporation Stock