In 2019, Datasoft Inc. received $350,000 in dividends from CSLabs Inc. Datasoft's taxable income before the dividends received deduction and $20,000 charitable contribution deduction is $300,000. What is Datasoft's DRD assuming it owns 15 percent of the CSLabs Inc. stock?
What will be an ideal response?
$140,000, computed as follows:
| Description | Amount | Explanation | |||
| (1) | Taxable income | $ | 300,000 | ||
| (2) | Charitable contribution deduction | (20,000 | ) | Included in taxable income in determining modified taxable income. The DRD and NOL carryback are excluded. | |
| (3) | DRD modified taxable income | 280,000 | |||
| (4) | Dividend income | 350,000 | |||
| (5) | Dividends received deduction percentage based on ownership | 50 | % | §243(c) | |
| (6) | Dividends received deduction before limitation | 175,000 | (4) × (5). | ||
| (7) | Dividends received deduction limitation | 140,000 | (3) × (5). | ||
| Dividends received deduction | $ | 140,000 | Lesser of (6) or (7) (full DRD does not create NOL so taxable income limitation is binding). | ||
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