Problem 19-37 (LO. 1, 3)

Black Corporation and Tom each own 50% of Tan Corporation's common stock. On January 1, Tan has a deficit in accumulated E & P of $200,000. Its current E & P is $90,000. During the year, Tan makes cash distributions of $40,000 each to Black and Tom.

Given the Dividend Received Deduction Table.

Percentage of Ownership Deduction Percentage

Less than 20% 50%

20% or more (but less than 80%) 65%

80% or more* 100%

*The payor corporation must be a member of an affiliated group with the recipient corporation. E

a. Complete the statements below that outline how the two shareholders are taxed on the distribution.

Black Corporation has dividend income of $ ______?? and is entitled to a dividends received deduction of $ 26,000. (Correct)

Tom has dividend income of $______??, which $_______?? is taxed at the preferential income tax rate.