Ridge, Inc., a domestic corporation, reports worldwide taxable income of $800,000, including a $300,000 dividend from Emma, Inc., a foreign corporation. Ridge's U.S. tax liability before FTC is $280,000. Ridge owns 20% of Emma. Emma's post-1986 E & P after taxes is $8 million and it has paid foreign taxes of $4 million attributable to that E & P. If Ridge elects the FTC, its U.S. gross income with regard to the dividend from Emma is:

Question

Quizplus · Accepted Answer

Ridge must gross up the dividend by the foreign taxes paid on it. The gross-up is calculated as $300,000 * ($4 million / $8 million) = $150,000. Therefore, the U.S. gross income with regard to the dividend is $300,000 + $150,000 = $450,000.