Jazz Corporation owns 10% of Favors Corp. stock. Favors distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from FavorsCorp.?

Question

Quizplus · Accepted Answer

Because Jazz owns less than 10% of Favors stock, the DRD percentage is 70%. Even though $2,800 (70% × 4,000 taxable income before the DRD) is less than the full DRD of $7,000, deducting the full DRD creates a net operating loss for Jazz [$4,000 - $7,000 = ($3,000)] so Jazz may deduct the full $7,000 DRD.

Jazz Corporation Owns 10% of Favors Corp