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 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 amount by the foreign tax rate. In this case, the foreign tax rate is determined by dividing the foreign income taxes paid by ForCo ($12 million) by its undistributed E&P ($18 million), which equals 0.67.

Therefore, the deemed paid foreign tax credit for Abbott Inc. is $900,000 x 0.67 = $600,000. The answer is B.