Dividends-received deduction

(redirected from Dividends-Received Deductions)

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.

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.

References in periodicals archive ?

"Some of the base broadeners in the Camp draft are very substantial, particularly the calculation of tax reserves, further limitations on the dividends-received deductions, and a cutback on the ability to use COLI or corporate-owned life insurance.

* Insurers' Concerns: Among them are changes to tax reserve calculations, increased limitations on the dividends-received deductions and a cutback on the ability to use corporate-owned life insurance.

Changes ahead? How recent proposals to change the tax code would affect the insurance industry

In an investment note, Keefe Bruyette & Woods analysts project the cost of the dividends-received deductions provisions at 5% to 10% of annual earnings for some life insurers, depending on the percentage of income gained from separate accounts in annuities.

Another would modify the rules that apply to "certain life insurance contracts," change the dividends-received deduction for certain life insurance company separate accounts and expand the pro-rata interest expense disallowance.

What is the administration thinking?

However, the gross receipts test does not apply if the corporation's cumulative deductions (excluding the NOL carryover and carryback deduction and the special dividends-received deductions) exceed its cumulative gross income during the five-year testing period (Sec.

Claiming ordinary losses for Sec. 1244 stock

246A, corporations that borrowed money to finance stock purchases could combine the interest-expense and dividends-received deductions (DRDs) to receive a double deduction, allowing them to virtually eliminate their tax liability on debt-financed dividend income.

Significant recent developments

Statutory changes (31) allow taxpayers to elect to claim dividends-received deductions (DRDs) from insurance companies at least 80% owned for years open to statute ending on or after Dec.

Current corporate income tax developments: this two-part article discusses a myriad of recent state tax activity in the corporate income tax area

1.1374-2 (a) (2) defines the taxable income limitation as the S corporation's taxable income determined by using all rules applying to C corporations, but without regard to the net operating loss (NOL) and dividends-received deductions. In determining its taxable income for prelimitation amount and taxable income limitation purposes, Regs.

Are the sec. 1374 final regulations a BIG improvement?

corporations generating income in the form of dividends entitled to dividends-received deductions, and other similar items.