SOFA-CFE · Question #137
Dividends generally constitute gross income, and dividends received from domestic corporations are eligible for which dividends?
The correct answer is B. dividends received deduction. Option B is correct because the Dividends Received Deduction (DRD) is a specific provision in the U.S. tax code (IRC §243) that allows corporations to deduct a portion of dividends received from domestic corporations in which they hold stock, reducing the effect of triple…
Question
Dividends generally constitute gross income, and dividends received from domestic corporations are eligible for which dividends?
Options
- Adividends allocated deduction
- Bdividends received deduction
- CGross dividends
- DConventional dividends deduction
How the community answered
(57 responses)- A5% (3)
- B72% (41)
- C9% (5)
- D14% (8)
Explanation
Option B is correct because the Dividends Received Deduction (DRD) is a specific provision in the U.S. tax code (IRC §243) that allows corporations to deduct a portion of dividends received from domestic corporations in which they hold stock, reducing the effect of triple taxation on corporate earnings. Option A ("dividends allocated deduction") is fabricated terminology - no such deduction exists in tax law. Option C ("Gross dividends") is simply a description of the income itself, not a deduction mechanism. Option D ("Conventional dividends deduction") is also invented phrasing with no basis in tax law.
Memory tip: Think DRD = "Don't get taxed twice" - the Dividends Received Deduction uses both "R" and "D" from "Received Deduction," matching the only real deduction in the answer choices.
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