Acct 553 Week 5

Topics: Stock, Corporation, Subsidiary Pages: 4 (1142 words) Published: April 14, 2013
What is the purpose of the dividends received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction? The purpose of dividends-received deduction is to prevent triple taxation of earnings.   The Dividend Received Reduction (DRD) is the concept where a corporation receiving a dividend from another corporation does not have to pay taxes on that dividend they received.  Code Sec243 of the IRS provide relief to domestic corporations, when paying dividends to its shareholders, which is subject to tax. In another words, the relief is the paid dividend to others corporations, in which the income would be tax a third time after the recipient corporation pays dividend to its shareholders. 14-51.

What is the purpose of the reconciliation of taxable income with book income? The net income on the financial books of a corporation may differ from the taxable income on its return. This is caused by differences in accounting methods between financial and taxable income. The computations used for financial accounting may straight-line depreciation while accelerated depreciation may be used for taxable income.

Sam Rogers forms a corporation. Sam transfers to the corporation property having a basis to him of $15,000 and a fair market value of $27,000 for 900 shares of the $10 par stock of the corporation. A year later, Bill Morrison, who is not related to Sam, transfers property having a basis to him of $1,000 and a fair market value of $3,000 for 100 shares of the corporate stock. The corporation issued no other stock. a. How much gain does Sam recognize on his exchange? What is the basis to Sam of his 900 shares? Sam has no gain, only realized gain of 12,000 and his basis is remain the same 15,000 b. How much gain does Bill recognize on his exchange? What is the basis to Bill of his 100 shares? Bill has a gain of $3000 on his exchange and his basis is $3000 c. What gain or loss is recognized by the...
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