Southern, an Alabama corporation, has a $7 million excess FTC carryforward attributable to its foreign branch manufacturing operations. Which of the following strategies should increase Southern's use of its FTC carryforward to reduce U.S. tax?

Question

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Opening a branch manufacturing operation in a foreign country with a lower corporate income tax rate than the U.S. would increase the amount of FTCs that Southern could claim on its U.S. tax return, thus reducing its U.S. tax liability. Option B would not be beneficial because the foreign country has a higher tax rate than the U.S. Option C may not be effective because repatriating foreign source income in the form of dividends would subject it to U.S. taxation, thus potentially reducing the amount of FTCs available to offset U.S. tax liability. Option D is incorrect because opening a branch manufacturing operation in a foreign country with a lower tax rate should increase the use of the FTC carryforward.

Southern, an Alabama Corporation, Has a $7 Million Excess FTC