The dividends-received deduction (DRD) depends on the percentage of the investor’s share of the investee. To take advantage of the DRD, investors must hold the investee’s stock for a specific period prior to the ex-dividend date. The DRD is only available to domestic C corporations, and is limited to the investor’s taxable income for the period.

For the dividends-received deduction (DRD), less than 20% ownership results in a 50% deduction, so Rohr gets a DRD of $1,500 (50% of the $3,000 dividend received).

Generally, the minimum dividends-received deduction (DRD) is 50%, which would mean in this case a $100,000 would result in a $50,000 DRD. However, the DRD is limited to the lesser of the DRD % applied to dividends received or the DRD % applied to taxable income without consideration of the DRD. Since we are told the taxable income is $90,000, the maximum DRD at 50% would be $45,000. (Had the company been eligible for a 65% DRD, the DRD could only have been $58,500, which was not an option.) 

The corporate DRD is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period of more than 45 days.

Per the DRD rates, with a 15% ownership in Apple, the percentage used for the deduction is 50%. 50% * $3,000 = $1,500.

Of the following choices, only a C Corporation in the United States would be applicable for the DRD under current US tax law.

Under the section 170(c) of the Internal Revenue Code, the charitable contribution deduction only applies to specific organizations. Among these include organizations such as government owned possession (if made exclusively for public purposes), a foundation organized exclusively for the public good, religious organizations, and nonprofit cemetery companies. Chambers of Commerce are considered political organizations and are disallowed, and supplemental unemployment benefits are not IRS designated charities.

Donations to political parties, whether by a corporation or an individual, never qualify for charitable contributions. Donations made to nonprofits (which includes universities and colleges) as well as to religious groups qualify for the charitable contribution deduction.

C corporations may deduct up to 10% of their gross income before deductions, so Fallon has a maximum of $20,000 it may deduct. Fallon’s board authorized a transfer of $15,000 cash prior to the end of the tax year, and companies are allowed to deduct accrued contributions if paid within 3 ½ months after year-end, meaning they may take the entire $15,000. Fallon also had an $8,000 carryover from the prior year, and corporations may carryover excess charitable contributions for up to five years after the contribution was made. As a  result, Fallon can also take an additional $5,000 from the carryover amount and apply that to the Year 19 tax year, for the maximum deduction of $20,000.

For the corporate charitable deduction, there is no carryback and only a 5 year carry forward period.