After several years of profitable operations, Javell, the sole shareholder of JB

Question

After several years of profitable operations, Javell, the sole shareholder of JBD Inc., a C corporation, sold 22 percent of her JBD stock to ZNO Inc., a C corporation in a similar industry. During the current year JBD reports $1,200,000 of after-tax income. JBD distributes all of its after-tax earnings to its two shareholders in proportion to their shareholdings. How much tax will ZNO pay on the dividend it receives from JBD? What is ZNO’s tax rate on the dividend income (after considering the DRD)? [Hint: See IRC §243.] (Round the "Tax rate on dividend income" to 2 decimal places.)

ZNO's tac on divident____?

ZNO's tax rate on dividend income____?

Explanation / Answer

As per IRC 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 to 80% and for ore than 80% deduction is 100%. Description (1) JBD’s after-tax income $1,200,000 (2) Dividend paid to ZNO 264,000 22% × (1) (3) Dividends received deduction $171,600 (2) × 65% (4) ZNO’s taxable dividend 92,400 (2) – (3) (5) ZNO’s marginal tax rate 21% (6) ZNO’s tax $19,404 (4) x (5) ZNO’s overall tax rate 7.35% (6)/(2) Zno tax on dividend $19,404 ZNO's tax rate on dividend income 7.35% Note: Answer is given as per latest provisons of 2018, since year is not specified, Thanks.

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