Dragon Corporation Reports a Distribution on Its Return from the Third

question 56

Multiple Choice

Dragon Corporation reports a distribution on its return from the third previous year as a stock redemption producing a capital gain. When the return is audited during the current year, the distribution of the third previous year is characterized by the IRS as a dividend. This change causes Dragon Corporation to be classified as a personal holding company for the third previous year. Which of the following statements is correct?

• A) A deficiency dividend is not permitted to be paid by Dragon.
• B) Dragon Corporation will owe no interest and/or underpayment penalty if the PHC tax is avoided by a deficiency dividend.
• C) Dragon Corporation will owe interest and/or underpayment penalty even if the PHC tax is avoided by a deficiency dividend.
• D) A dividend must be paid within 120 days of establishing the PHC tax liability and a claim for a dividends- paid deduction must be filed within 90 days of the determination date.

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