Grand Corporation, a domestic corporation, owns 60% of ABT, a foreign corporation. During the current year, Grand receives a $160,000 dividend from ABT. ABT's post-1986 undistributed U.S. earnings are $1,200,000. ABT's post-1986 undistributed earnings are $1,600,000. Grand dividends received deduction for the current year is:

Question

Quizplus · Accepted Answer

The dividends received deduction is limited to the taxable income of the foreign corporation that is effectively connected with a U.S. trade or business (ECI) or the portion of the dividend that represents ECI. To calculate the portion of the dividend that represents ECI, we can use the following formula:

ECI Portion = Dividend x (Post-1986 ECI Earnings / Post-1986 Earnings)

In this case, the ECI portion of the dividend is:

ECI Portion = $160,000 x ($1,200,000 / $1,600,000) = $120,000

Therefore, Grand's dividends received deduction is $120,000. The answer is C.

Grand Corporation, a Domestic Corporation, Owns 60% of ABT, a Foreign