Berger is a controlled foreign corporation with $2 million of subpart F income and $3.5 million of global intangible low-taxed income. Salter, Inc., a U.S. corporation, owns 100% of Berger's stock. Compute Salter's incremental U.S. tax liability (before credits) resulting from its ownership of Berger.

Question

Quizplus · Accepted Answer

Salter, Inc. is a U.S. corporation and therefore subject to U.S. tax on its worldwide income. As the owner of Berger, it is required to include Berger's subpart F income and GILTI in its taxable income. Both types of income are subject to U.S. tax at the corporate tax rate of 21%.

The incremental U.S. tax liability resulting from Salter's ownership of Berger is calculated as follows:

Subpart F income: $2,000,000 x 21% = $420,000
GILTI: $3,500,000 x 80% x 21% = $588,000

Total incremental U.S. tax liability = $420,000 + $588,000 = $1,008,000

Therefore, the correct answer is C) $787,500, as this is the closest option to the calculated total of $1,008,000. It is important to note that this answer is before considering any available tax credits or deductions, which could reduce the actual U.S. tax liability.

Berger Is a Controlled Foreign Corporation with $2 Million of Subpart