Pierre Corporation has a precredit U.S. tax of $315,000 on $1,530,000 of taxable income in the current year. Pierre has $306,000 of foreign source taxable income characterized as foreign branch income and $153,000 of foreign source taxable income characterized as passive category income. Pierre paid $63,000 of foreign income taxes on the foreign branch income and $21,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC)can Pierre use on its current U.S. tax return and what is the amount of the carryforward, if any?

Question

Quizplus · Accepted Answer

Pierre Corporation can use $84,000 of foreign tax credit (FTC) on its current U.S. tax return with $0 carryforward. This is calculated by adding the foreign income taxes paid on both the foreign branch income ($63,000) and the passive category income ($21,000), totaling $84,000. Since the question does not indicate that the FTC limit (calculated based on the ratio of foreign income to total income and the U.S. tax rate) is lower than the taxes paid, it is assumed that the entire $84,000 can be used as FTC with no carryforward.

Pierre Corporation Has a Precredit U