Wisconsin Cheese Corp. is a large producer of gourmet cheese and has recently expanded overseas. In its first year of international operations ( year 1), Wisconsin Cheese had $ 1 billion of U. S. taxable income, faced a 35% U. S. tax rate, and paid $ 100 million of foreign taxes. The $ 1 billion of taxable income includes $ 200 million of foreign- source income and $ 800 million of U.S- source income.
a. What is Wisconsin Cheese Corp.’ s year 1 foreign tax credit, foreign tax credit carryover, and U. S. tax liability?
b. Now assume that in year 2, Wisconsin Cheese again has $ 1 billion of U. S. source income, again faces a 35% U. S. tax rate, and paid $ 120 million of foreign taxes. In year 2, the firm reported $ 500 million of foreign- source income on its U. S. return. What is Wisconsin Cheese Corp.’ s year 2 foreign tax credit, foreign tax credit carryover, and U. S. tax liability?