USCo, a U.S. corporation, reports worldwide taxable income of $1,500,000, including a $300,000 dividend from ForCo, a whollyowned foreign corporation. ForCo's undistributed earnings and profits are $15 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

USCo, a U.S. corporation, reports worldwide taxable income of $1,500,000, including a $300,000 dividend from ForCo, a wholly­owned foreign corporation. ForCo's undistributed earnings and profits are $15 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?

Quizplus · Accepted Answer

The deemed paid foreign tax credit is calculated based on the proportion of the dividend to the total earnings and profits of the foreign corporation. The formula is: (Dividend / Total E&P) * Foreign taxes paid. Here, ($300,000 / $15,000,000) * $10,000,000 = $200,000.

USCo, a US