Question

This year, GHJ Inc. received the following dividends. BP Inc. (a taxable California corporation in which GHJ holds a 6% stock interest) MN Inc. (a taxable Florida corporation in which GHJ holds a 55% stock interest) AB Inc. (a taxable French corporation in which GHJ holds a 32% stock interest) $21,300 82,800 21,300 Compute GHJ's dividends-received deduction Answer is complete but not entirely correct. $ 81,150 Dividends-received deduction

The math I did - 21300(.7) + 82800(.8) = 81150. Please help me calculate the right answer as I cannot figure it out!

Answer 1

Generally, if a corporation receives dividends from another corporation, it is entitled to a deduction of 50 percent of the dividend it receives. If the corporation receiving the dividend owns 20 percent or more, then the amount of the deduction increases to 65 percent. If, on the other hand, the corporation receiving the dividend owns more than 80 percent of the distributing corporation, it is allowed to deduct 100 percent of the dividend it receives.

The above rule applies for domestic corporation. Thus DRD is not applicable on AB Inc., a french corporation.

Dividend-received deduction = (21300*0.5) + (82800*0.65) = $64,470