Palm owns a 70% interest in Sable,a domestic subsidiary.Sable is not part of Palm's affiliated group.Palm will pay taxes on

Question

Quizplus · Accepted Answer

Under the U.S. tax code, a domestic corporation that receives dividends from another domestic corporation in which it owns less than 80% but at least 20% of the stock by vote or value is entitled to a dividends received deduction (DRD) of 65% of the dividends. This effectively means the corporation will pay taxes on 35% of the dividends received. However, since the question specifies that Palm will pay taxes (implying the focus is on the taxable portion), and the general understanding of such phrasing aligns with the taxable portion rather than the deduction, the correct interpretation aligns with the standard DRD rules but was inaccurately framed in the options provided. Given the options available and the typical understanding of tax obligations on dividends received by a corporation from a domestic subsidiary in which it has a significant but not complete ownership, the closest correct option based on standard tax treatment would be to pay taxes on a portion of the dividends, with the specific percentages provided in the options not accurately reflecting standard tax code but suggesting a scenario where Palm pays taxes on a part of the dividends received. Thus, the selection is made based on the available options and the understanding that Palm is taxed on a portion of the dividends, with the specific choice reflecting the necessity to choose from the provided options rather than an exact match to standard tax code percentages.

Palm Owns a 70% Interest in Sable,a Domestic Subsidiary