Rufus,Inc. ,a domestic corporation,has worldwide taxable income of $800,000,including a $300,000 dividend from Emma,Inc. ,a § 902 noncontrolled foreign corporation.Rufus' U.S.tax liability before FTC is $280,000.Rufus owns 20% of Emma.Emma's post-1986 E & P after taxes is $8 million and it has paid foreign taxes of $5 million attributable to post-1986 E & P.If Rufus elects the FTC,its U.S.gross income with regard to the dividend from Emma is:

Question

Quizplus · Accepted Answer

Since Rufus owns 20% of Emma, the dividend received is eligible for § 902 deemed paid foreign tax credit (FTC) . The calculation of the deemed paid FTC is as follows:

Deemed paid FTC = foreign taxes paid x (dividend received / post-1986 E&P)

Deemed paid FTC = $5,000,000 x ($300,000 / $8,000,000) = $187,500

As Rufus can elect the FTC, the taxable income is reduced by the amount of the deemed paid FTC. Hence,

Taxable income = $800,000 - $187,500 = $612,500

The U.S. tax liability before the FTC is $280,000. The U.S. tax liability on the reduced taxable income is calculated as follows:

U.S. tax liability = ($510,300 x 34%) + $46,075 = $197,483

Therefore, the U.S. gross income with regard to the dividend from Emma is $487,500 ($300,000 - $187,500).

Rufus,Inc ,A Domestic Corporation,has Worldwide Taxable Income of $800,000,including a $300,000