After several years of profitable operations, Javell, the sole shareholder of JBD Inc., a C corporation,...

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After several years of profitable operations, Javell, the sole shareholder of JBD Inc., a C corporation, sold 18 percent of h

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Answer 1

Answer #1

As per IRC Â§243(a), generally a corporation are entitled to 50% of dividend received from corporation but this deduction is increased to 65%, if owned 20% or more. ZNO owns 18% of JBD and so it is also entitled to a 50 percent dividends received deduction.

Dividend received by ZNO = JBD After-tax income * 18% = 1,660,000 *18% = 298,800

Dividends received deduction = 298,800 * 50% = 149,400

Taxable portion of dividend = 298,800 * 50% = 149,400

Tax on dividend = 149,400 * 35% = $52290

ZNOs overall tax rate on its dividend income = Tax on dividend / total dividend received

= 52290/298800 = 17.5%

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Answer 2

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