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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Definitions:

Cognitive Schema

Mental structures that organize our knowledge, beliefs, and expectations based on past experiences.

Deep-Seated Belief

A strongly held conviction or principle that is deeply ingrained in an individual's thought patterns, often affecting behavior.

Developmental History

involves the comprehensive record of an individual's physical, emotional, and psychological development from birth to the current age, used often in psychological assessments.

Consequences

Outcomes or effects that result from a specific action or set of conditions.