Accounting

USCo, a domestic corporation, reports worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly owned foreign corporation. ForCo’s post-1986 undistributed earnings and profits total $1 million, and it has paid $200,000 of foreign income taxes attributable to these earnings. All foreign income is in the general limitation basket.

What is USCo’s deemed-paid (indirect) foreign tax credit related to the dividend received (before consideration of any limitation)?

ABC, Inc., a domestic corporation, owns 100% of HighTax, a foreign corporation. HighTax has $50 million of post-1986 undistributed earnings, all of which is attributable to general limitation income, and $50 million of post-1986 foreign income taxes. HighTax distributes a $5 million dividend to ABC. The dividend, which is subject to a 5% foreign withholding tax, is ABC’s only item of income during the year. The U.S. tax rate is 35%.

What amount of excess foreign tax credits is produced by the dividend?

Solution:

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