In the current year, Crimson, Inc, a calendar C corporation, has income from operations of $180,000 and operating deductions of $225,000 . Crimson also had $30,000 of dividends from a 15% stock ownership in a domestic corporation. Which of the following statements is correct with respect to Crimson for the current year?
a. Crimson's NOL is $15,000.
b. A dividends received deduction is not allowed in computing Crimson's NOL.
c. The NOL is carried back 3 years and forward 10 years by Crimson.
d. Crimson's dividends received deduction is $21,000.
e. None of the above.
d
RATIONALE: A 70% dividends received deduction is allowed for a 15% stock ownership, resulting in a deduction of $21,000 (70% × $30,000 dividends). The taxable income limitation does not apply as Crimson has an NOL with the normal dividends received deduction of $21,000 . Crimson's NOL is $36,000 ($180,000 operating income + $30,000 dividends – $225,000 operating deductions – $21,000 DRD) (choice a.). Generally, an NOL is carried back 2 years and forward 20 years, but a corporation can elect to forgo the carryback period and just carry the NOL forward (choice c.).
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