Bismarck Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2016. Bismarck has $200,000 of foreign source taxable income characterized as general category income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the general category income and $10,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Bismarck use on its 2016 U.S. tax return and what is the amount of the carryforward, if any?

Question

Quizplus · Accepted Answer

The FTC is limited to the U.S. tax on foreign source income. The general category limit is ($200,000/$1,000,000) * $340,000 = $68,000, and the passive category limit is ($50,000/$1,000,000) * $340,000 = $17,000. Bismarck can claim $68,000 for general and $10,000 for passive, totaling $78,000. The carryforward is $12,000 ($80,000 + $10,000 - $78,000).

Bismarck Corporation Has a Precredit U