USCo, a domestic corporation, has worldwide taxable income of $1,500,000, including a $300,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo's post-1986 undistributed earnings and profits are $16 million and it has paid $10 million of foreign income taxes attributable to these earnings. What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

Question

Quizplus · Accepted Answer

The deemed paid foreign tax credit is calculated as the dividend received multiplied by the foreign corporation's post-1986 undistributed earnings and profits divided by the foreign corporation's total post-1986 earnings and profits. In this case, the deemed paid foreign tax credit is $300,000 x $16 million / $16 million = $187,500.

USCo, a Domestic Corporation, Has Worldwide Taxable Income of $1,500,000