[Anonymous]

In the current year, Brown, a C corporation, has gross income (before dividends) of $900,000 and deductions of $1,100,000 (excluding the dividends-received deduction). Brown received dividends of $100,000 from a Fortune 500 corporation during the current year. What is Brown’s net operating loss?

Answer and explanation: $170,000

This answer is correct. The requirement is to determine the amount of Brown Corporation’s net operating loss. For the year, Brown had gross income (other than dividends) of $900,000, received dividends of $100,000, and had deductions of $1,100,000, resulting in a net operating loss of $100,000 before subtracting a dividends-received deduction (DRD). It should be assumed that Brown owned less than 20% of the Fortune 500 corporation that paid the dividend, making the dividend eligible for a 70% DRD. The resulting DRD of $100,000 × 70% = $70,000 increases the net operating loss to $170,000.

---

I do not think one should simply assume “that Brown owned less than 20% of the Fortune 500 corporation”.

[jeff]

For exam purposes, yes.

A F500 has around $5B in revenues and up, so it would make sense that a 20% owner would get more than $100k in dividends.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[jeff]

For exam purposes, yes.

A F500 has around $5B in revenues and up, so it would make sense that a 20% owner would get more than $100k in dividends.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[thehip41]

Seems like a perfectly normal question.

It's basically asking you this:

“what do you do with the DRD when there is a net operation loss?”

The answer is, you take the deduction anyway. Figure out the NOL and then tack on the DRD

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[thehip41]

Seems like a perfectly normal question.

It's basically asking you this:

“what do you do with the DRD when there is a net operation loss?”

The answer is, you take the deduction anyway. Figure out the NOL and then tack on the DRD

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[Author]

Replies