Pierre Corporation has a precredit U.S. tax of $315,000 on $1,500,000 of taxable income in 2018. Pierre has $300,000 of foreign source taxable income characterized as foreign branch income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $60,000 of foreign income taxes on the foreign branch income and $15,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Pierre use on its 2018 U.S. tax return and what is the amount of the carryforward, if any?

Question

Quizplus · Accepted Answer

The foreign tax credit in the foreign branch income basket is limited to the lesser of $60,000 or the FTC limitation, computed as $300,000/$1,500,000 × $315,000 = $63,000. The foreign tax credit in the passive category basket is limited to the lesser of $15,000 or the FTC limitation, computed as $150,000/$1,500,000 × $315,000 = $31,500. The total FTC is $60,000 + $15,000 = $75,000, leaving a $0 carryforward.

Pierre Corporation Has a Precredit U