Polka Corporation is a 100 percent owned Polish subsidiary of Pierogi Inc., a U.S. corporation. During the current year, Polka paid a dividend of €525,000 to Pierogi. The dividend was subject to a withholding tax of €26,250. Assume an exchange rate of €1 = $1.50. Pierogi reported U.S. taxable income of $1,000,000. Compute Pierogi's net U.S. tax liability for the current year and excess FTC, if any.
What will be an ideal response?
Net U.S. tax of $210,000 with no FTC carryforward.
| Dividend (€525,000 × $1.50) | $ | 787,500 | |
| 100 percent dividends received deduction | (787,500 | ) | |
| U.S. taxable income | 1,000,000 | ||
| Taxable income | $ | 1,000,000 | |
| × 21% | × 0.21 | ||
| Precredit U.S. tax | $ | 210,000 | |
| Less | |||
| Withholding tax (€26,250 × $1.50) | 0 | ||
| Net U.S. tax | $ | 210,000 | |
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