Waltz,Inc.,a U.S.taxpayer,pays foreign taxes of $50,000 on foreign-source general basket income of $90,000.Waltz's worldwide taxable income is $450,000,on which it owes U.S.taxes of $157,500 before FTC.Waltz's FTC is $50,000.

Question

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The foreign tax credit (FTC) is limited to the lesser of the foreign taxes paid or the U.S. tax liability on the foreign-source income. The U.S. tax liability on the foreign-source income is calculated as ($90,000 / $450,000) * $157,500 = $31,500. Therefore, the FTC is limited to $31,500, not $50,000.

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