Provo Corporation, a U.S. corporation, received a dividend of $350,000 from its 100 percent owned German subsidiary. A withholding tax of $35,000 was imposed on the dividend. What are the U.S. tax consequences to Provo on receipt of the dividend, assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S. operations?
A) Taxable income of $350,000, net U.S. tax liability of $0, and $14,000 FTC carryforward
B) Taxable income of $350,000, net U.S. tax liability of $20,000, and $0 FTC carryforward
C) Taxable income of $0 and $35,000 FTC carryforward
D) Taxable income of $0 and $0 FTC carryforward

Question

Provo Corporation, a U.S. corporation, received a dividend of $350,000 from its 100 percent owned German subsidiary. A withholding tax of $35,000 was imposed on the dividend. What are the U.S. tax consequences to Provo on receipt of the dividend, assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S. operations?
A) Taxable income of $350,000, net U.S. tax liability of $0, and $14,000 FTC carryforward
B) Taxable income of $350,000, net U.S. tax liability of $20,000, and $0 FTC carryforward
C) Taxable income of $0 and $35,000 FTC carryforward
D) Taxable income of $0 and $0 FTC carryforward

Quizplus · Accepted Answer

The dividend is eligible for the 100% dividends received deduction and no foreign tax credit is allowed for the withholding tax.