USCo, a domestic corporation, has worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo's post-1986 undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings. What is USCo'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 as the foreign taxes paid by ForCo multiplied by the ratio of the dividend received to ForCo's post-1986 undistributed earnings and profits. Thus, $200,000 * ($100,000 / $1,000,000) = $20,000.

USCo, a Domestic Corporation, Has Worldwide Taxable Income of $500,000