CHAPTER2-LECTURE3 - A B INDIVIDUAL SHAREHOLDERS CORP CORP...

XI. DIVIDENDS RECEIVED DEDUCTION (DRD)
PURPOSE IS TO PREVENT OR MINIMIZE THE
IMPACT OF TRIPLE TAXATION
(AVAILABLE ONLY TO DOMESTIC
CORPORATIONS)
(STOCK MUST BE HELD FOR MORE THAN FORTY-FIVE (45) DAYS
DURING A NINETY (90) DAY PERIOD BEFORE ITS SALE OR OTHER
DISPOSITION (IN THE CASE OF PREFERRED STOCK, MORE THAN NINETY
(90) DAYS DURING A ONE-HUNDRED EIGHTY (180) DAY PERIOD BEFORE
ITS SALE OR OTHER DISPOSITION)
(1) DEDUCTION PERCENTAGE
OWNERSHIP DEDUCTION
PERCENTAGE
*
PERCENTAGE
LESS THAN 20% 70%
20% OR MORE BUT 80%
LESS THAN 80%
80% OR MORE 100%
* - VOTING POWER AND VALUE
(2) TAXABLE INCOME BEFORE DIVIDENDS
RECEIVED DEDUCTION
GROSS INCOME (REVENUES) FROM OPERATIONS
- EXPENSES FROM OPERATIONS
INDIVIDUAL
SHAREHOLDERS
B
CORP
A
CORP

+ DIVIDENDS RECEIVED
= TAXABLE INCOME BEFORE DIVIDENDS
RECEIVED DEDUCTION
TAXABLE INCOME BEFORE :
(1) NET OPERATING LOSS
(2) CAPITAL LOSS CARRY BACK
(3) DIVIDENDS RECEIVED
DEDUCTION
(4) DOMESTIC PRODUCTION
ACTIVITIES DEDUCTION
3 (3) STEPS IN COMPUTING DIVIDENDS
4 RECEIVED DEDUCTION
5 STEP 1: MULTIPLY DIVIDENDS
6 RECEIVED BY THE DEDUCTION
7 PERCENTAGE
STEP 2: MULTIPLY TAXABLE INCOME
BEFORE DIVIDENDS RECEIVED
DEDUCTION (TIBDRD) BY
DEDUCTION PERCENTAGE
STEP 3: THE DIVIDENDS RECEIVED
DEDUCTION IS THE LOWER
OF STEP 1 OR STEP 2 UNLESS
SUBTRACTING STEP 1 FROM

TAXABLE INCOME BEFORE
DIVIDENDS RECEIVED
DEDUCTION (TIBDRD) YIELDS A
LOSS . IF SO, STEP 1 IS THE
DIVIDENDS RECEIVED
DEDUCTION
PROBLEM 54
XII. ORGANIZATIONAL EXPENSES
QUALIFYING EXPENSES
(1) LEGAL FEES
(2) ACCOUNTING FEES
(3) EXPENSES OF TEMPORARY DIRECTORS
AND ORGANIZATIONAL MEETINGS OF
DIRECTORS AND SHAREHOLDERS
(4) STATE INCORPORATION FEE
COSTS OF ISSUING, SELLING OR PRINTING
STOCK CERTIFICATES ARE NOT QUALIFYING
EXPENSES (AND, THEREFORE, NOT DEDUCTIBLE)
QUALIFYING EXPENSES MUST BE INCURRED
(NOT NECESSARILY PAID) BEFORE THE END OF
THE TAXABLE YEAR IN WHICH CORPORATION
BEGINS BUSINESS:
BUSINESS BEGINS
(WHEN FIRST OF THESE TO OCCUR)

(1) HAD SHAREHOLDERS
(2) HAD ASSETS
(3) BEGAN DOING BUSINESS