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.?
A) $0.
B) $4,000.
C) $5,000.
D) $6,500.
E) None of the choices is correct.

Question

Quizplus · Accepted Answer

Because Jazz owns less than 20% of the Williams stock, the DRD percentage is 50%. Further, $4,000 (50% × $8,000 taxable income before the DRD) is less than the full DRD of $5,000 and the full DRD does not create a net operating loss ($8,000 − $5,000 = $3,000). As a result, the DRD is limited to $4,000.

Jazz Corporation Owns 10% of the Williams Corp