Corporation a Owns 10% of CorporationC

Essay

Corporation A owns 10% of CorporationC. The marginal tax rate on non-dividend income for both A and C is 34%. 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 20% of partnership P that 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 70 percent dividends received deduction?
$\begin{array}{|l|c|l|}\hline {\text { Description }} & \text { Amount } & {\text { Explanation }} \\\hline \begin{array}{l}\text { (1) Dividend from } \\\text { Corporation C }\end{array} & \$ 13,200,000 & \begin{array}{l}\$ 200,000,000 \times(1-.34) \times \\10 \%\end{array} \\\hline \begin{array}{l}\text { (2) Tax on dividend from } \\\text { Corporation C }\end{array} & \$ 1,346,400 & (1) \times 34 \% \times 30 \% \\\hline \begin{array}{l}\text { (3) Cash remaining after } \\\text { tax on dividend }\end{array} & \$ 11,853,600 & (1)-(2) \\\hline\end{array}$ $$\begin{array} { | l | c | c | } \hline { \text { Description } } & \text { Amount } & \text { Explanation } \\\hline \begin{array} { l } \text { (1) Cash received from } \\\text { Partnership P }\end{array} & \mathbf { \$ 1 0 0 , 0 0 0 , 0 0 0 } & \mathbf { \$ 5 0 0 , 0 0 0 , 0 0 0 } \times \mathbf { 2 0 } \% \\\hline \begin{array} { l } \text { (2) Tax on share of income } \\\text { from Partnership P }\end{array} & \mathbf { \$ 3 4 , 0 0 0 , 0 0 0 } & ( 1 ) \times \mathbf { 3 4 \% } \\\hline \begin{array} { l } \text { (3) Cash remaining from } \\\text { distribution after taxes }\end{array} & \mathbf { \$ 6 6 , 0 0 0 , 0 0 0 } & ( 1 ) - ( 2 ) \\\hline\end{array}$$ $\begin{array}{|l|c|l|}\hline {\text { Description }} & \text { Amount } & {\text { Explanation }} \\\hline \begin{array}{l}\text { (1) Dividend from } \\\text { Corporation C }\end{array} & \$ 13,200,000 & \begin{array}{l}\$ 200,000,000 \times(1-.34) \\\times \mathbf{1 0 \%}\end{array} \\\hline \begin{array}{l}\text { (2) Tax on dividend from } \\\text { Corporation C }\end{array} & \$ 1,980,000 & (1) \times 15 \% \\\hline \begin{array}{l}\text { (3) Cash remaining after } \\\text { tax on dividend }\end{array} & \$ 11,220,000 & (1)-(2) \\\hline\end{array}$