Bismarck Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxableincome in 2017. Bismarck has $200,000 of foreign source taxable income characterized as general category income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the general category income and $10,000 of foreign income taxes on the passive categoryincome. What amount of foreign tax credit (FTC) can Bismarck use on its 2017 U.S. tax return and what is the amount of the carryforward, if any?

Question

Quizplus · Accepted Answer

The FTC is limited to the lesser of foreign taxes paid or the U.S. tax on foreign income. For general category: $80,000 paid vs. $68,000 limit ($200,000/$1,000,000 * $340,000), so $68,000 FTC and $12,000 carryforward. For passive category: $10,000 paid vs. $17,000 limit ($50,000/$1,000,000 * $340,000), so $10,000 FTC. Total FTC is $78,000 with $12,000 carryforward.

Bismarck Corporation Has a Precredit U