If (1) the taxpayer contests an asserted liability, 2) the taxpayer transfers money or other property to provide for the satisfaction of the asserted liability, (3) the contest with respect to the asserted liability exists after the time of the transfer, and 4) but for the fact the asserted liability is contested, a deduction would be allowed for
the tax year of the transfer (or an earlier tax year) subject to certain exceptions, the deduction will be allowed for
the tax year of the transfer.
A corporation that owns less than 20% of either the voting power or the value of a dividend-paying corporation receives a 70% DRD for regular tax purposes.(7) Seventy percent DRDs always follow the general rule and are never allowed for
ACE purposes.(8) Example 1 considers the cost of the disallowed DRD if the investor firm is subject to the AMT and receives a dividend from a less-than-20%-owned-corporation.