Julia, an accrual-method taxpayer, is a U.S. citizen and a resident of a foreign country. Her tax year for both countries is a calendar year. Julia accrues 50,000 coras for the foreign country tax liability on December 31 of last year when the exchange rate is one cora = $1. Julia pays the tax to the foreign country on its due date, March 1 of the current year. The exchange rate on that date is one cora = $1.50. Julia files her U.S. tax return for last year on April 15 of the current year when the exchange rate is one cora = $2. Julia's foreign tax credit is
A)$50,000.
B)$75,000.
C)$100,000.
D)none of the above.

Question

Quizplus · Accepted Answer

Julia's foreign tax credit is calculated using the exchange rate on the day she pays the tax to the foreign country, which is March 1 of the current year. Therefore, her foreign tax credit is calculated as $50,000 / 1.50 = $33,333.33. This is the maximum amount of foreign tax credit she can claim. Since her total foreign tax liability is $50,000, she can claim a foreign tax credit of only $33,333.33 on her U.S. tax return.

Julia, an Accrual-Method Taxpayer, Is a U