Many Mountains, Inc. is a U.S. multinational corporation. This year, it had the following income. $\begin{array}{llr}
\text { U.S. source income} &&\$580,000\
\text { Eoreign source income:} &\
\text { Country x }&\$65,000\
\text {Country Y } &105,000&170,000\
\text { Total} &&\$750,000\

\end{array}$
Many Mountains paid $15,000 income tax to Country X and $18,500 income tax to Country Y. Assume Many Mountains' foreign source income does not qualify as foreign-derived intangible income. Compute Many Mountains' allowable foreign tax credit.

Question

Many Mountains, Inc. is a U.S. multinational corporation. This year, it had the following income. $\begin{array}{llr}
  \text {  U.S. source income} &&\$580,000\
 \text {  Eoreign source income:} &\
 \text {  Country x }&\$65,000\
 \text {Country Y  } &105,000&170,000\
 \text {  Total} &&\$750,000\

\end{array}$
 Many Mountains paid $15,000 income tax to Country X and $18,500 income tax to Country Y. Assume Many Mountains' foreign source income does not qualify as foreign-derived intangible income. Compute Many Mountains' allowable foreign tax credit.

Quizplus · Accepted Answer

Many Mountains' allowable foreign tax credit is the lesser of the foreign taxes paid or the U.S. tax liability on the foreign source income. Many Mountains' U.S. tax liability on the foreign source income is $35,700 (21% x $170,000). Therefore, the allowable foreign tax credit is limited to $33,500 ($15,000 + $18,500), which is the total foreign taxes paid.

Many Mountains, Inc Many Mountains Paid $15,000 Income Tax to Country X and It