Dividends-received deduction

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Dividends-received deduction

A corporate tax deduction on income allowed by company A that is in ownership of shares of company B and receives dividends on the shares of company B.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Dividends-Received Deduction

A reduction in the taxable income of a company when it receives dividends from stock it owns in another company. A company is eligible for a 70% dividends-received deduction if it owns less than 20% of the second company, 80% if it owns between 20% and 80% of the company, and 100% if it owns more than that. A dividends-received deduction exists in order to reduce the effects of triple taxation on publicly-traded companies; that is, the company must pay corporate taxes and its shareholders must pay capital gains taxes. The dividends-received deduction allows companies to mostly avoid a third tax on the same earnings.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
This example makes clear that the dividends received deduction equal to 85 percent of qualifying dividends is allocated solely against qualifying dividends.
245 Dividends Received Deduction for Foreign Corporations
* Amounts deducted pursuant to the dividends received deduction.
The ordinary income accrued under the OID-like rules is not a dividend and therefore a corporate holder would apparently not be eligible for the 70% dividends received deduction (DRD).
The consolidated return rules or dividends received deduction eliminate the second level of taxation in most cases involving a U.S.
Use of an FSC will result in double taxation because the S shareholders are not eligible for the special FSC dividends received deduction under Sec.
An important specific exception, however, is the corporate dividends received deduction (DRD).
It would not normally be recommended that a foreign parent own a foreign sales corporation (FSC), since foreign shareholders do not get the FSC dividends received deduction allowed to U.S.
The attraction of traditional preferred stock among corporate investors has always been the availability of the section 243(a)(1) (1) dividends received deduction (DRD).
The TAM concludes, based on the legislative history of the Subchapter S Revision Act of 1982 (SSRA), that this later provision was meant to apply individual rather than corporate rules to an S corporation receiving distributions on stock it held - presumably in the calculation of the dividends received deduction.
170(b)(2), is that the deduction for any tax year is limited to 10% of taxable income determined without regard to charitable contributions, special deductions (dividends received deduction, etc.) and net operating and capital loss carry-backs.