Maxim,Inc.,a U.S.corporation,reports worldwide taxable income of $8 million,including a $900,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's undistributed E & P are $15 million and it has paid $6 million of foreign income taxes attributable to these earnings.What is Maxim's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

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Maxim can claim a deemed paid foreign tax credit for the foreign income taxes paid by ForCo on the dividend. The credit is calculated as the lesser of the foreign taxes paid or the U.S. tax on the dividend. In this case, the foreign taxes paid are $6 million, which is less than the U.S. tax on the $900,000 dividend. Therefore, Maxim can claim a deemed paid foreign tax credit of $6 million multiplied by the ratio of the dividend to ForCo's E&P ($900,000/$15 million), which equals $360,000.

Maxim,Inc,A U