Which of the following statements regarding translation of foreign taxes is true?

Question

Quizplus · Accepted Answer

Foreign taxes are typically paid in a foreign currency, and when claiming a foreign tax credit on a U.S. return, they must be converted to U.S. dollars using the exchange rate in effect on the date the taxes were paid. This conversion is necessary to ensure that the taxpayer receives the proper credit for foreign taxes paid. Option B is incorrect because foreign taxes must be translated into U.S. dollars regardless of whether there is a tax benefit or not. Options C and D are incorrect because the translation of foreign taxes into U.S. dollars for tax purposes has no direct impact on the U.S. balance of trade or the decision of foreign corporations to set up operations in the United States.

Which of the Following Statements Regarding Translation of Foreign Taxes