Pierre Corporation has a precredit U.S. tax of $510,000 on $1,500,000 of taxable income in 2016. Pierre has $300,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $90,000 of foreign income taxes on the general category income and $15,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Pierre use on its 2016 U.S. tax return and what is the amount of the carryforward, if any?

Question

Quizplus · Accepted Answer

To calculate the FTC, we need to determine the foreign taxable income and the limit for each category of income:

General category income:
- Foreign taxable income = $300,000
- Foreign income taxes paid = $90,000
- Limit = ($300,000/$1,500,000) x $510,000 = $102,000
- FTC = $90,000 (limited to $102,000)
Passive category income:
- Foreign taxable income = $150,000
- Foreign income taxes paid = $15,000
- Limit = ($150,000/$1,500,000) x $510,000 = $51,000
- FTC = $15,000 (limited to $51,000)
Total FTC = $105,000

Since the total FTC is less than the precredit U.S. tax, there is no carryforward.

Pierre Corporation Has a Precredit U