Appleton Corporation, a U.S. corporation, reported total taxable income of $10,000,000 in the current year. Taxable income included $2,500,000 of foreign source taxable income from the company's branch operations in the United Kingdom. All of the branch income is foreign branch income. Appleton paid U.K. income taxes of $500,000 on its branch income. Compute Appleton's net U.S. tax liability and any foreign tax credit carryover.
What will be an ideal response?
A net U.S. tax of $1,600,000 and an FTC carryover of $0.
Appleton Corporation's precredit U.S. tax is $2,100,000 ($10,000,000 × 21%). Appleton has creditable foreign taxes of $500,000. The company's foreign tax credit limitation is computed as:
$2,500,000/$10,000,000 × $2,100,000 = $525,000.
Appleton's allowable foreign tax credit for 2018 is the full $500,000, creating no excess credit. Appleton's net U.S. tax is $1,600,000, computed as $2,100,000 ? $500,000.
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