Krebs,Inc.,a U.S.corporation,operates an unincorporated branch manufacturing operation in the U.K.Krebs,Inc.,reports $900,000 of taxable income from the U.K.branch on its U.S.tax return,along with $1,600,000 of taxable income from its U.S.operations.The U.K.branch income is all general limitation basket income.Krebs paid $270,000 in U.K.income taxes related to the $900,000 in branch income.Assuming a U.S.tax rate of 35%,what is Krebs' U.S.tax liability after any allowable foreign tax credits?

Question

Quizplus · Accepted Answer

Krebs, Inc.'s taxable income for the U.S. is $1,600,000 + $0 (no foreign tax credit limitation for general basket income) = $1,600,000. Therefore, the U.S. tax liability is $1,600,000 x 35% = $560,000. However, Krebs, Inc. can claim a foreign tax credit for the U.K. income taxes paid of $270,000. The U.S. tax liability is reduced by the foreign tax credit to $560,000 - $270,000 = $290,000.

Krebs,Inc,A U