Question

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

A. $0.
B. $4,000.
C. $5,000.
D. $6,500.
E. None of the choices is correct.

Answer 1

Jazz Corporation's dividends received deduction on the dividend it received from Williams Corp. would be $0.

Step-by-step explanation:

Jazz Corporation's dividends received deduction on the dividend it received from Williams Corp. would be $0. The dividends received deduction is a tax provision that allows a corporation to exclude a portion of dividends received from another corporation's taxable income.

However, in order to qualify for the deduction, the recipient corporation must own at least 20% of the distributing corporation's stock. Since Jazz Corporation only owns 10% of the Williams Corp. stock, it does not meet the ownership requirement and therefore cannot claim the dividends received deduction.