Corporation a Owns 10 Percent of Corporation C

Essay

Corporation A owns 10 percent of Corporation C.The marginal tax rate on nondividend income for both A and C is 21 percent.Corporation C earns a total of $200 million before taxes in the current year, pays corporate tax on this income, and distributes the remainder proportionately to its shareholders as a dividend.In addition, Corporation A owns 40 percent of Partnership P, which earns $500 million in the current year.Given this fact pattern, answer the following questions:
a.How much cash from the Corporation C dividend remains after Corporation A pays the tax on the dividend, assuming Corporation A is eligible for the 50 percent dividends received deduction?
b.If Partnership P distributes all of its current-year earnings in proportion to the partner's ownership percentages, how much cash from Partnership P does Corporation A have after paying taxes on its share of income from the partnership?
c.If you were to replace Corporation A with Individual A [her marginal tax rate on ordinary income is 37 percent and on qualified dividends is 23.8 percent (including the net investment income tax)] in the original fact pattern above, how much cash does Individual A have from the Corporation C dividend after all taxes, assuming the dividends are qualified dividends? Consistent with the original facts, assume that Corporation C distributes all of its after-tax income to its shareholders.