Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction.Hawk Corporation pays Eagle a dividend of $130,000,which was considered in calculating the $100,000.What amount of dividends received deduction may Eagle claim if it owns 15% of Hawk's stock?
A)$0
B)$70,000
C)$91,000
D)$104,000
E)None of the above

Question

Quizplus · Accepted Answer

The dividends received deduction is limited to 50% of the dividend income for owners of less than 20% of the stock. Therefore, Eagle can claim a deduction of 50% of $130,000, which is $65,000. Since this amount is less than Eagle's taxable income before the deduction, the full deduction can be claimed. However, since Eagle owns only 15% of Hawk's stock, it cannot claim an 80% dividends received deduction as can owners of 20% or more of a corporation's stock. Therefore, the answer is B.

Eagle Corporation Owns Stock in Hawk Corporation and Has Taxable