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USCo owns 100% of FORco, a foreign corporation. FORco earns $10 million of Subpart F income...

USCo owns 100% of FORco, a foreign corporation. FORco earns $10 million of Subpart F income on which it pays country F tax at a 15% rate. What is USCo's foreign tax credit limitation?

Question 21 options:

1)

 $0.

2)

 $2.1 million.

3)

 $1 million.

4)

 $1.89 million.
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Answer #1

Answer:- 1) $0

Explanation:-

Since, USCo owns 100% of FORco, a foreign corporation. So the only tax the FORco will pay is the F tax to F country. And if there is no tax other than F tax, so question of credit does not arise.

In the above Question FROco will only pay F tax of $1.5 million. And since, there is no tax on USCo, so there will be no tax credit as well. If FROco would have been the branch of USCo then USA tax was applicable.

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