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QUESTION 1 FOR QUESTIONS 1 THROUGH 3: USCo, a U.S. C corporation, owns 100% of FORco,...

QUESTION 1

  1. FOR QUESTIONS 1 THROUGH 3: USCo, a U.S. C corporation, owns 100% of FORco, a foreign disregarded entity taxed as a branch. In 2018, FORco earns $10 million of foreign source income on which it pays country F income tax at a 15% rate.

    What are the creditable foreign taxes of USCo?

    a.

    $0
    b.

    $1.89 million
    c.

    $1.5 million
    d.

    $2.1 million  

QUESTION 2

  1. What is USCo's foreign tax credit limitation?

    a.

    $0
    b.

    $1.5 million
    c.

    $3.5 million
    d.

    $2.1 million

QUESTION 3

  1. What is USCo's foreign tax credit?

    a.

    $0
    b.

    $3.5 million
    c.

    $1.5 million
    d.

    $2.1 million
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Answer #1

Q1. $0 because the income which is earned through foreign sources is already tax on that country and according to US govt. if any income generated through foreign sources will taxed on country only.

Q2. $0 because foreign tax credit limitation is only applicable when income is taxed in US.

Q3. $0 because USCo's foreign tax credit is just a relief for that companies who already pay tax to that country where income generated that is foreign income.

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