Question

Chapeau Company, a U.S. corporation, operates through a branch in Champagnia. The source rules used by Champagnia are identical to those used by the United States. For 2019, Chapeau has $10,800 of gross income: $6,480 from U.S. sources and $4,320 from sources within Champagnia. The $6,480 of U.S. source income and $3,780 of the foreign source income are attributable to manufacturing activities in Champagnia (foreign branch income). The remaining $540 of foreign source income is passive category interest income. Chapeau had $2,700 of expenses other than taxes, all of which are allocated directly to manufacturing income ($1,080 of which is apportioned to foreign sources). Chapeau paid $502 of income taxes to Champagnia on its manufacturing income. The interest income was subject to a 10 percent withholding tax of $54.

Compute Chapeau’s total allowable foreign tax credit in 2019. (Do not round any division. Round other intermediate computations to the nearest whole dollar amount.)

Answer 1

Pre-credit U.S. tax
Total taxable income (10800-2700)	8100
Pre-credit U.S. tax (8100*21%)	1701
FTC limitation calculations
General category basket income (manufacturing)
Foreign source taxable income (3780-1080)	2600
FTC limitation: 2600/8100*1701	546
Foreign tax imposed	502
Passive category basket income
Foreign source taxable income (540-0)	540
FTC limitation: 540/8100*1701	113
Foreign tax imposed (withholding tax)	54
Foreign tax credit allowed
General category: Lesser of $546 or $502	502
Passive category: Lesser of $113 or $54	54
Total foreign tax credit allowed	$556