1. 

   SoCalCPA
   

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   I am not able to recognize that the Company in the question is only allowed 70% dividend received deduction (DRD). Thanks for your help in advance!

   Q) For the CY, K Corp. had net income per books of $300K before provision for Federal income taxes. Included in the net income were following items:

   - dividend income from an unaffiliated domestic taxable corp $50K
   - bad debt expense 80K

   Assuming no bad debt was written off, what was K's taxable income for hte year?

   A) $345,000

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   I understand that bad debt expense should be added back (unsure of the exact reason), but I don't see why only 70% of 50K is subtracted. I thought the key word was "unrelated company" to subtract 50K. Thanks again!

   B - (4/2012)
   A - (5/2012)
   R - (1/2012) Done!
   F - (10/2011) Done!

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   Posted 5 months ago #
2. 

   Minimorty
   

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   @SoCalCPA - "unaffiliated domestic taxable corp" means that we only own a small interest in this corporation. If a company owns less than 20% of another company, it is able to deduct 70% of the dividends it receives. If the company owns more than 20% but less than 80% of the company paying the dividend, it is able to deduct 80% of the dividend received. If it owns more than 80% of the dividend-paying company, it is allowed to deduct 100% of the dividends it receives. The key word in this problem is "unaffiliated" which implies that we own less than 20%.

   Posted 5 months ago #
3. 

   SoCalCPA
   

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   Haha, I should have known, thanks so much!

   So 20% or under --> "unaffiliated, unrelated"

   How about keywords for 20~80%, and 80% +?

   B - (4/2012)
   A - (5/2012)
   R - (1/2012) Done!
   F - (10/2011) Done!

   Posted 5 months ago #
4. 

   Minimorty
   

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   >80% would be "related" "affiliated" "wholly-owned subsidiary", etc.

   Not too sure about that 20-80% area. I would think they would actually give you the ownership percentage (ie. you own 35% of ABC Company).

   Posted 5 months ago #
5. 

   SoCalCPA
   

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   Thanks Mini, I greatly appreciate your help!

   B - (4/2012)
   A - (5/2012)
   R - (1/2012) Done!
   F - (10/2011) Done!

   Posted 5 months ago #
6. 

   NJCPA4ME
   

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   I just wanted to add that this is done to avoid triple taxation on the money. Everything said above is correct.

   FAR 93
   REG 1/14/12
   AUD 2012 qtr 2
   BEC 2012 qtr 3

   Posted 5 months ago #

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