Final answer:
The amount of Jazz Corporation's dividends received deduction on the dividend from Williams Corp. is $4,000, which is limited by their pre-deduction taxable income (after the loss), resulting in option C being correct.
Step-by-step explanation:
The dividends received deduction (DRD) is a provision that allows corporations to deduct a portion of the dividends they receive from their taxable income. However, the DRD is subject to certain limitations. The full amount of the dividend cannot be deducted; instead, the deduction is typically based on a percentage of the dividends received, which depends on the ownership percentage in the distributing corporation. In this case, Jazz Corporation owns 10% of Williams Corp, so it will generally be able to deduct at a rate applicable to smaller ownership stakes, which is often 50% of the dividends received.
However, since Jazz Corporation's taxable income before the dividend was a loss of ($6,000), this loss offsets the dividend income, bringing the taxable income up to $4,000 before a dividends received deduction is considered. The maximum allowable DRD is limited to the lesser of the dividends received or taxable income before the dividends received deduction, if positive, after the net operating loss deduction. Since the corporation's taxable income before the DRD is $4,000 (after netting the loss), this is the maximum it can deduct, resulting in taxable income being adjusted back down to $0.
In conclusion, the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp. is $4,000, which brings its taxable income down to zero. Therefore, option C is the correct answer.