Hamilton, a U.S. corporation, reports the following results from its current year activities: U.S.-source taxable income .
Question:
Hamilton, a U.S. corporation, reports the following results from its current year activities:
U.S.-source taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000
Foreign-source taxable income from manufacturing
activities in Country M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
Foreign taxes paid on manufacturing income . . . . . . . . . . . . 390,000
Gross U.S. income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . 799,000
Hamilton owns 20% of the stock in Beauvais, a foreign corporation. In the current year, Beauvais generates a total of $1.75 million of Subpart F income, taxable to all its U.S. shareholders, including Hamilton. Beauvais’ pretax profits are $6 million, and its Country M taxes are $1.2 million. Beauvais’ E&P under U.S. rules is $4 million, $3.6 million of which was derived from foreign manufacturing and $400,000 of which was earned on foreign securities.
a. For foreign tax credit purposes, into which of Hamilton’s credit limitation baskets should its pro rata share of Subpart F income be placed and in what amounts?
b. Calculate Hamilton’s current year foreign tax credit.
c. How should any excess credits be treated?
Step by Step Answer:
Federal Taxation 2021 Corporations, Partnerships, Estates & Trusts
ISBN: 9780135919460
34th Edition
Authors: Timothy J. Rupert, Kenneth E. Anderson, David S. Hulse