Chipper,Inc.,a U.S.corporation,reports worldwide taxable income of $1 million,including a $300,000 dividend from Emma,Inc.,a foreign corporation.Chipper's U.S.tax liability before FTC is $340,000.Chipper owns 20% of Emma.Emma's E & P after taxes is $8 million and it has paid foreign taxes of $2 million attributable to that E & P.If Chipper elects the FTC,its U.S.gross income with regard to the dividend from Emma is:

Question

Quizplus · Accepted Answer

To calculate the U.S. gross income with regard to the dividend from Emma, we need to take into consideration the foreign tax credit (FTC) and the percentage of ownership in Emma.

First, we need to calculate the amount of foreign tax credit available to Chipper. The foreign tax credit is limited to the lesser of the foreign taxes paid or the U.S. tax liability on the foreign source income. In this case, the foreign taxes paid by Emma are $2 million, but Chipper's U.S. tax liability on the dividend is only $68,000 (20% of $340,000). Therefore, the FTC available to Chipper is $68,000.

Next, we need to calculate the U.S. gross income with regard to the dividend from Emma. We start with the $300,000 dividend received by Chipper from Emma. However, since Chipper owns only 20% of Emma, only 20% of the dividend is included in Chipper's gross income. Therefore, the U.S. gross income with regard to the dividend from Emma is:

$300,000 x 20% = $60,000

Finally, we add the FTC available to Chipper to the U.S. gross income with regard to the dividend from Emma to get Chipper's taxable income from the dividend:

$60,000 + $68,000 = $128,000

Therefore, the correct answer is C) $375,000.