In the current year, Red Corporation (a calendar year C corporation), which owns stock in Blue Corporation, had net operating income of $200,000 for the year. Blue pays Red a dividend of $40,000. Red takes a dividends received deduction of $20,000. Which of the following statements is correct?
A) Red owns 80% of Blue Corporation.
B) Red owns 20% or more, but less than 80% of Blue Corporation.
C) Red owns 80% or more of Blue Corporation.
D) Red owns less than 20% of Blue Corporation.
E) None of the above.

Question

Quizplus · Accepted Answer

Red's dividends received deduction of $20,000 on a $40,000 dividend indicates a 50% deduction, which applies when ownership is less than 20%.

In the Current Year, Red Corporation (A Calendar Year C