Dragon Corporation Reports a Distribution on Its Return from the Third

question 37

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)Dragon Corporation will owe interest and/or underpayment penalty even if the PHC tax is avoided by a deficiency dividend.
• B)Dragon Corporation will owe no interest and/or underpayment penalty if the PHC tax is avoided by a deficiency dividend.
• C)A deficiency dividend is not permitted to be paid by Dragon.
• 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:

Production Techniques

The methods and processes used by firms to produce goods or deliver services, including all aspects from initial design to final output.

Economic Loss

A situation where revenues from business activities are less than the expenses and costs associated with sustaining the business.

Price of Labor

The wage rate or compensation that employers pay workers in exchange for their labor or services.

Dollar Votes

The concept that consumers show their preferences for products and services by how they spend their money.