Molly, Inc., a domestic corporation, owns 15% of PJ, Inc., and 12% of Emma, Inc., both foreign

Question:

Molly, Inc., a domestic corporation, owns 15% of PJ, Inc., and 12% of Emma, Inc., both foreign corporations. Molly is paid gross dividends of $35,000 and $18,000 from PJ and Emma, respectively. PJ withheld and paid more than $10,500 in foreign taxes on the $35,000 dividend.

PJ's country of residence levies a 20% tax on dividends paid to nonresident corporations. However, the tax rate is increased to 30% if the recipient is a resident of a country that provides an FTC. Taxes of $3,600 are withheld on the dividend from Emma.

What tax issues must be considered in determining the availability and amount of the FTC allowed to Molly, Inc.?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...