Jazz Corporation owns 10% of 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) $5,600
C) $7,000
D) $8,000
E) None of these.

Question

Quizplus · Accepted Answer

Because Jazz owns less than 10% of Williams stock, the DRD percentage is 70%. Further, $5,600 (70% × 8,000 taxable income before the DRD) is less than the full DRD of $7,000 and the full DRD does not create a net operating loss ($8,000 - $7,000 = $1,000), so the DRD is limited to $5,600.

Jazz Corporation Owns 10% of Williams Corp