Corporation a Owns 10% of Corporation C

question 62

Essay

Corporation A owns 10% of Corporation C. The marginal tax rate on non-dividend income for both A and C is 21%. 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% 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 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% 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.

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Definitions:

Person-Job Matching

The process of aligning the skills, interests, and attributes of individuals with the demands and characteristics of specific jobs to enhance job satisfaction and performance.

Employee Aptitudes

The natural abilities or talents that individuals possess, which can influence their performance and effectiveness in certain job roles.

Newly Hired

Refers to employees who have recently been employed by an organization and are in the early stages of integrating into their roles.

Situational Factors

External and internal factors that can influence the outcomes of decision-making processes or behaviors in organizational settings.