USCo, a domestic corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld. Its worldwide taxable income is $1,500,000 and its U.S. tax liability before the foreign tax credit is $525,000. What is USCo's allowed foreign tax credit?

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The foreign tax credit is limited to the lesser of the foreign taxes paid ($70,000) or the U.S. tax on the foreign-source income. The U.S. tax on the foreign-source income is calculated as ($700,000 / $1,500,000) * $525,000 = $245,000. Since $70,000 is less than $245,000, the allowed foreign tax credit is $70,000.

USCo, a Domestic Corporation, Receives $700,000 of Foreign-Source Passive Income