Reference no: EM132973089

A Corporation owns 10 percent of D Corporation. D Corporation earns a total of $201 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, A Corporation owns 40 percent of Partnership P. Partnership P earns $501 million in the current year. Given this fact pattern, answer the following questions:

Problem a. How much cash from the D Corporation dividend remains for A Corporation after A pays the tax on the dividend, assuming A Corporation is eligible for the 50 percent dividends received deduction?

Problem 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 A Corporation have after paying taxes on its share of income from the partnership?

Problem c. If you were to replace A Corporation with Individual A [marginal tax rate on ordinary income is 37 percent 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 D Corporation dividend after all taxes, assuming the dividends are qualified dividends? Consistent with the original facts, assume that D Corporation distributes all of its after-tax income to its shareholders.