[Anonymous]

Does anyone with Becker understand this question. I chose 70,000 because I thought you choose the lesser of the dividends received or the taxable income unless it leads to a loss or adds to a loss. Can anyone explain to me why this one is different?

In Year 1, Best Corp., an accrual-basis calendar-year C corporation, received $100,000 in dividend income from the common stock that it held in an unrelated domestic corporation. The stock was not debt-financed and was held for over a year. Best recorded the following information for Year 1:

Loss from Best’s operations

$ (10,000)

Dividends received

100,000

Taxable income (before dividends-received deduction)

90,000

Best’s dividends-received deduction on its Year 1 tax return was:

a.

$63,000

b.

$100,000

c.

$80,000

d.

$70,000

Explanation

Choice “a” is correct. The dividends-received deduction (“DRD”) is generally calculated as 70% of dividends received which would be $70,000 (70% × $100,000). However, the deduction is limited to 70% × dividends received deduction (DRD) modified taxable income. DRD modified taxable income is calculated as taxable income before the dividends received deduction, any NOL carryover or carryback deduction, capital loss carryback deduction, and the domestic production activities deduction. Because the loss of $10,000 is a current year loss and not a carryover or carryback, it is not an adjustment to taxable income when calculating modified taxable income. DRD modified taxable income is $90,000. Best’s DRD deduction on its Year 1 tax return is limited to $63,000 (70% × $90,000).

[Finishorgiveup]

On Becker R3-24 (I am using 2013 edition)

The dividends received deduction equals the LESSER of:

a. 70% or 80% dividends received, or

b. 70% or 80% of taxable income computed without regard to the DRD, any NOL deduction, or capital loss carry back

Therefore, the correct answer is “a”

I hope this helps

REG - 70. Retake on 5/30/14
AUD - 8/31/14
FAR - target 11/30/14
BEC - target 2/28/15
California Candidate

[Finishorgiveup]

On Becker R3-24 (I am using 2013 edition)

The dividends received deduction equals the LESSER of:

a. 70% or 80% dividends received, or

b. 70% or 80% of taxable income computed without regard to the DRD, any NOL deduction, or capital loss carry back

Therefore, the correct answer is “a”

I hope this helps

REG - 70. Retake on 5/30/14
AUD - 8/31/14
FAR - target 11/30/14
BEC - target 2/28/15
California Candidate

[PocketsWithCash]

To put it another way, look at the DRD as a multi-step process:

Step 1: Does the DRD add to or create a loss?

If Yes – > Full DRD

If no – > Step 2

Step 2: Is taxable income < dividends received?

If Yes – > DRD% * Taxable Income, in this case 70% * $90,000 = $63,000

If No – > Full DRD

Note: NOL, and capital loss carryback have to come from future years, so in most problems these will not be an issue (unless multiple years presented)

FAR 97
REG 91
AUD 5/30/14
BEC 7/11/14

[PocketsWithCash]

To put it another way, look at the DRD as a multi-step process:

Step 1: Does the DRD add to or create a loss?

If Yes – > Full DRD

If no – > Step 2

Step 2: Is taxable income < dividends received?

If Yes – > DRD% * Taxable Income, in this case 70% * $90,000 = $63,000

If No – > Full DRD

Note: NOL, and capital loss carryback have to come from future years, so in most problems these will not be an issue (unless multiple years presented)

FAR 97
REG 91
AUD 5/30/14
BEC 7/11/14

[Anonymous]

Ahh got it thanks alot guys!

[Anonymous]

Ahh got it thanks alot guys!

[Author]

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