Question

Crane and Loon Corporations, two unrelated C corporations, have the following transactions for the current year Crane Loon Gross income from operations Expenses from operations Dividends received from domestic corporations (15% ownership) $186,000 260,400 111,600 $297,600 312,480 223,200 Click here to access the dividends received deduction table. a. Compute the dividends received deduction for Crane Corporation. b. Compute the dividends received deduction for Loon Corporation. $

Answer 1

Solution:

Deduction percentage will be 70% of dividends received

	Crane	Loan
(1) 70% of dividends received	70% of 111,600 = 78,120	70% of 223,200 = 156,240
(2) 70 % of taxable income	70 % of 37,200 = 26,040	70% of 208,320 = 145,824
(3) Lesser of (1) and (2)	78,120 ( See note 2)	145,284 ( see note 3)
Dividend received deduction	78,120	145,284

Workings:

1)Calculation of taxable income

Crane corporation = 186,000 - 260,400 + 111,600 = 37,200

Loan corporation = 297,600 - 312,480 +223,200 = 208,320

2) Crane Corporation qualifies for the loss rule treatment because subtracting $78,120 ( step 1) from the taxable income of $37,200 does yield a loss.

3)Loan Corporation is subject to the 70 percent of taxable income limitation. It does not qualify for the loss rule treatment because subtracting $156,240 (step 1) from the taxable income of $208,320 does not yield a loss.