Qwan,a U.S.corporation,reports $250,000 interest expense for the tax year.None of the interest relates to nonrecourse debt or loans from affiliated corporations.Qwan's U.S.and foreign assets are reported as follows. Fair market value- U.S.assets $ 5,000,000 Foreign assets $10,000,000 Tax book value- U.S.assets $ 2,000,000 Foreign assets $ 6,000,000 How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Question

Qwan,a U.S.corporation,reports $250,000 interest expense for the tax year.None of the interest relates to nonrecourse debt or loans from affiliated corporations.Qwan's U.S.and foreign assets are reported as follows. Fair market value- U.S.assets $ 5,000,000 Foreign assets $10,000,000 Tax book value- U.S.assets $ 2,000,000 Foreign assets $ 6,000,000 ​ How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Quizplus · Accepted Answer

Using fair market values maximizes the foreign tax credit (FTC) by allocating more interest expense to foreign sources, as the foreign assets have a higher fair market value compared to their tax book value.

Qwan,a USCorporation,reports $250,000 Interest Expense for the Tax Year