Dividends Received Deduction

The Dividends Received Deduction (DRD) is a Tax Deduction available to Corporations in the United States that receive dividends from other Corporations. The purpose of the DRD is to mitigate the potential for double taxation on income that has already been taxed at the corporate level.

The deduction amount varies depending on the ownership percentage the receiving Corporation has in the dividend-paying Corporation:

• 50% deduction for less than 20% ownership.
• 65% deduction for 20% to 80% ownership.
• 100% deduction for 80% or more ownership (subject to certain conditions).

For example:

• If Corporation A owns 15% of Corporation B and receives $10,000 in dividends, Corporation A can deduct $5,000 (50% of $10,000) from its Taxable Income.
• If Corporation C owns 25% of Corporation D and receives $20,000 in dividends, Corporation C can deduct $13,000 (65% of $20,000).

In terms of cases, one notable example is the General Utilities doctrine, which historically allowed Corporations to avoid double taxation through certain transactions. However, this doctrine has been largely curtailed, making the DRD more relevant for corporate tax planning.