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Unformatted text preview: 14-24What is the purpose of the dividends-received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction?The tax deduction received by a corporation on the dividends paid to it by companies in which it has an ownership stake. Generally Corporation pays taxes on its income before distributing dividends. So if this deduction is not allowed the corporation paying dividend pays taxes, the corporation receiving dividends pays taxes on it again and the shareholders receiving this pays tax again. So it leads to triple taxation. U.S. corporations are generally entitled to a deduction for dividends received from certain other domestic corporations.If the recipient corporation owns less than 20% of the distributor's stock, the recipient corporation is allowed a deduction of 70% of dividends paid out of distributor's tax earnings and profits (E&P). When the recipient of the dividend has at least 20% but less than 80% ownership by vote or value in the distributor, an 80% DRD is allowed under Sec. 243(c). Finally, Sec. 243(a)(3) allows a 100% deduction for "qualifying dividends," when a corporation receives dividends from another corporation that is a member of the same affiliated group14-51What is the purpose of the reconciliation of taxable income with book income?As per section 446 the rules requires taxable income to be calculated using the same method of accounting as the taxpayer uses for its book income. Still there are differences in the accounting method used for GAAP against tax, this could be due to numerous factors like cash method of accounting versus accrual method of accounting, depreciation methods, inventory methods, expenses not qualified for tax but documented in accounting books and so forth.Reconciliation of taxable income to book income helps to quantify by how much of the summative book tax differences are due to different methods used for accounting for grouping entities for book and tax purposes. It also helps to identify the things occurring due to permanent and temporary accounting differences. It is significant to understand how book income was calculated before adjusting it to calculate final taxable income and it also helps end users like shareholders & various other stake holders of the financial statements and income tax authorities to determine accuracy.17-1Identify and briefly describe the seven types of corporate reorganization?...
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- Spring '10