1. For this year, Pine Corporation had losses of $20,000 from operations. It rec
ID: 2445799 • Letter: 1
Question
1. For this year, Pine Corporation had losses of $20,000 from operations. It received $180,000 in dividends from a 25%-owned domestic corporation. Pine’s taxable income is $160,000 before the dividends-received deduction. What is the amount of Pine’s dividend-received deduction?
2. Dividends on deposits or withdrawable accounts in mutual savings banks qualify for the dividends-received deduction when received by a corporation. True or false - explain
3. In the current year, Sting Corporation had net income per books of $65,000, tax-exempt interest of $1,500, excess contributions of $3,000, excess tax depreciation over book depreciation of $4,500, premiums paid on term life insurance on corporate officers of $10,000 (Sting is the beneficiary), and accrued federal income tax of $9,700. Based on this information, what is Sting Corporation’s taxable income as would be shown on Schedule M-1 of its corporate tax return?
Explanation / Answer
Net income per books $65,000
Add back:
Federal income taxes 9,700
Excess contributions 3,000
Life insurance premiums 10,000
$87,700
Subtract:
Tax-exempt interest (1,500)
Excess depreciation (4,500)
Taxable income $81,700
1. Dividend received deduction = 160000 x 80% = 128000 (full DRD doesn't create loss).
DRD will be 80% of taxable inome because percent partnership is 25% which is between 20 to 80%.
2. False, Dividends on deposits or withdrawable accounts in mutual savings banks are interest, not dividends. So they do not qualify for this deduction.
3.
Net income per books $65,000
Add back:
Federal income taxes 9,700
Excess contributions 3,000
Life insurance premiums 10000
87700
Subtract:
Tax-exempt interest -1500
Excess depreciation -4500
Taxable income $81,700
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