EXHIBIT 16-6 Stock Ownership and Dividends Received Deduction Percentage

Receiving Corporations Stock Ownership in Distributing Corporations Stock	Dividends Received Deduction Percentage
Less than 20 percent	50%
At least 20 percent but less than 80 percent	65
80 percent or more*	100

* To qualify for the 100 percent dividends received, the receiving and distributing corporations must be in the same affiliated group as described in 1504. The 80 percent ownership requirement is the minimum ownership level required for inclusion in the same affiliated group.

Description Book Income (Dr) Cr $ 310,000 Book-tax adjustments (Dr) Taxable Income (Dr) Cr 310,000 $ 120,000 $ 430,000 120,000 430,000 (300,000) Gross profit Other income: Dividend income Gross Income Expenses: Business expenses other than DRD, CC, and NOL Federal income tax expense Total expenses before charitable contribution, NOL, and DRD deduction Income before charitable contribution, NOL and DRD NOL carryover from prior year Taxable income for charitable contribution limitation purposes (modified taxable income) 30,000 (300,000) (30,000) (330,000) $ 100,000 (300,000) 130,000 (12,000) (12,000) 118,000 (50,000) 38,200 Charitable contributions Taxable income before DRD Dividends received deduction (DRD) $ (11,800) 106,200 (94,560) (94,560) Book/Taxable income 50,000 000 (106,560) $ 68,200 $ 11,640 Compute HC Inc.'s current-year taxable income given the following information relating to its 2019 activities. Also, compute HC's Schedule M-1 assuming that HC's federal income tax expense for book purposes is $30,000. Use Exhibit 16-6. Gross profit from inventory sales of $310,000 (no book-tax differences). Dividends HC received from 28 percent-owned corporation of $120,000 (this is also HC's pro rata share of the corporation's earnings) Expenses other than DRD, charitable contribution (CC), and net operating loss (NOL), are $300,000 (no book-tax differences). NOL carryover from prior year of $12,000. Cash charitable contribution of $50,000