Abbott, Inc., a domestic corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo's post-1986 undistributed E & P are $18 million and it has paid $12 million of foreign income taxes attributable to these earnings. What is Abbott's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

Question

Quizplus · Accepted Answer

The deemed paid foreign tax credit is calculated by multiplying the dividend received by the foreign tax rate paid by the foreign corporation. In this case, the foreign tax rate is 12 million/18 million = 2/3. Therefore, the deemed paid foreign tax credit is $900,000 x 2/3 = $600,000.