Pierre Corporation has a precredit U.S. tax of $510,000 on $1,500,000 of taxable income in 2017. Pierre has $300,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $90,000 of foreign income taxes on the general categoryincome and $15,000 of foreign income taxes on the passive category income. Whatamount of foreign tax credit (FTC) can Pierre use on its 2017 U.S. tax return and what is the amount of the carryforward, if any?

Question

Quizplus · Accepted Answer

The foreign tax credit is limited to the lesser of the foreign taxes paid or the U.S. tax attributable to the foreign income. The U.S. tax attributable to the foreign income is calculated as: (foreign source income / total taxable income) * precredit U.S. tax. For general category: ($300,000 / $1,500,000) * $510,000 = $102,000. For passive category: ($150,000 / $1,500,000) * $510,000 = $51,000. The FTC is the sum of the lesser of foreign taxes paid or U.S. tax attributable for each category: $90,000 (general) + $15,000 (passive) = $105,000. There is no carryforward because the FTC used is equal to the foreign taxes paid.

Pierre Corporation Has a Precredit U