REG Study Group – Q1 2018 - Page 20

“Analyze the impact of the charitable contribution and/or dividends received deductions on the net operating loss calculation of a C corporation.”

This is one of the “analysis” topics so I want to make sure I understand this correctly.

The dividends received deduction (DRD) equals the lessor of 70% or 80% of dividends received (depending on ownership % of the investor in the investee)

OR

70% or 80% of taxable income computed without regard to the DRD, NOL, capital loss carryback, charitable contributions, etc.

*The one exception is if the DRD creates or adds to corp. NOL, then the DRD is not limited to % of taxable income.

So this is what I understand in plain English with an example below.

Let's say that my taxable income before any of that stuff mentioned above is $150K including $100K of dividends received from an investee in which I have 80% ownership.

1. Calculate the DRD deduction based on ownership % on the dividends received and on the taxable income.
80% of $100K = $80K and 80% of $150K = $120K

2. Take the lessor of the calculation result for #1 and subtract it from taxable income.
$150K – $80K = $70K

However, let's suppose my taxable income was only $70K including $100K of dividends received from an investee in which I have 80% ownership.

80% of $100K dividends received = $80K and 80% of $70K taxable income = $49K

$70K – $80K = -$10K

Bottom line = take the lessor of DRD%*dividends received OR DRD%*taxable income UNLESS taking the full DRD deduction on the dividends would CREATE OR INCREASE NOL.

Does this all sound right to you guys?

Sandy James' Capital Transactions
Common Stock Date Acquired Cost Date Sold Sales Price Gain Loss ST or LT
200 shares of L Corp. 2/1/Yr. 4 $21,000 3/17/Yr. 5 $15,000 0 $6,000 LT
300 shares of R Corp. 4/18/Yr. 4 4,000 4/18/Yr. 5 9,000 $5,000 0 ST
100 shares of T Corp. 5/20/Yr. 1 7,800 7/22/Yr. 5 4,000 0 $1,900 LT
50 shares of T Corp. 8/15/Yr. 5 4,900

If I am following your logic, you are saying that the original loss of $4,000-$7,800 = -$3,800 should be reduced by the amount of the disallowed loss as a result of the 08/15/year 5 purchase of 50 shares of T corp?

$-3,800+(($78/share-$40/share))*50 shares repurchased within 30 days)
$-3,800+$1,900= – $1,900

I'm not sure either but will keep looking. I am wondering too why the 50 shares of T corp. repurchase isn't reducing the initial loss on sale of shares from 7/22/year 5.

Is this from Roger or Ninja?

close, except in the first example 80% ownership would give you a total deduction

my understanding of it:

< 20%           70%
 20 <= x < 80    80%
 >= 80           100%

@recked

Thanks!

What do you think this means “Compare the tax implications of liquidating distributions from different business entities”.

Is that talking about distributions with regards to the C corp, S corp, and partnerships?

For example, with C corp —> current E&P, accumulated E&P, reduce stock basis and return of capital, capital gain, etc.?

Which convention will be used in the following case:-

If for example, I purchase an asset in Feb worth $ 10,000. and also in Dec worth 40,000.

I will apply mid quarter convention for 40,000 . But should I apply mid year convention or mid quarter convention for 10,000 worth asset purchased in Feb?

@Reema Mid-quarter for the Feb asset as well. If you look at the MACRS tables for mid quarter there's 4 different ones, one for each quarter.

@ scattershot- Thanks a lot.

I have one more question. Sim 32 of Ninja

Line 33: Keisha paid interest on her student loan in the amount of $1,500. The deductibility of student loan interest is limited to $2,500; the limit on modified AGI for Head of Household is $80,000. Since Keisha’s AGI is well above the $80,000 limit, she cannot deduct any of the $1,500 of student loan interest.

Line 34: As is the case on line 33, Keisha’s AGI is well above the $80,000 limit and therefore she cannot deduct any amount of tuition and fees on this line.

From the above explanation, I could see that Interest on loan is deductible up to 2500 and there is a limit mentioned of $ 80,000. I don't recollect any such limits mentioned in Roger review course. Is it expected to remember these limits?