Question

Chapeau Company, a U.S. corporation, operates through a branch in Champagnia. The source rules used by Champagnia are identical to those used by the United States. For 2019, Chapeau has $2,800 of gross income: $1,680 from U.S. sources and $1,120 from sources within Champagnia. The $1,680 of U.S. source income and $980 of the foreign source income are attributable to manufacturing activities in Champagnia (foreign branch income). The remaining $140 of foreign source income is passive category interest income. Chapeau had $700 of expenses other than taxes, all of which are allocated directly to manufacturing income ($280 of which is apportioned to foreign sources). Chapeau paid $182 of income taxes to Champagnia on its manufacturing income. The interest income was subject to a 10 percent withholding tax of $14.

Compute Chapeau’s total allowable foreign tax credit in 2019. (Do not round any division. Round other intermediate computations to the nearest whole dollar amount.)

Answer 1

Pre credit U.S tax
Total taxable (2800-700)	$ 2100
Pre credit U.S tax (2100- 21%)	$ 441
FTC limitation calculation
General catagory Basket income ( manufacturer)
Foreign source taxable income ($ 980-280)	$ 700
FTC limitation 700/2100*441	$ 147
Foreign tax imposed	$ 182
Passive catagory Basket income
Foreign source taxable income (140-0)	$ 140
FTC limitation 140/2100*441	$ 29
Foreign tax imposed (without holding tax)	$ 14
Foreign tax credt allowed
General catagory - lessor of 147 or 182	$ 147
Passive catagory - lessor of 29 or 14	$ 14
Total Foreign tax credt allowed	$ 161