Ypsi Corporation has a precredit U.S. tax of $780,000 on $2,000,000 of taxable income in 2017....

Ypsi Corporation has a precredit U.S. tax of $780,000 on $2,000,000 of taxable income in 2017. Ypsi has $400,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Ypsi paid $180,000 of foreign income taxes on the general category income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its 2017 U.S. tax return and what is the amount of the FTC carryforward, if any?

Multiple Choice

$186,000 FTC with an excess $24,000 FTC

$186,000 FTC with an excess $28,500 FTC

$214,500 FTC with an excess $0 FTC

$210,000 FTC with an excess $0 FTC

Expert Solution

Foreign tax credit will be the smaller of the amount of foreign tax paid or accrued, or the amount of U.S. tax attributable to your foreign source income. Limit is to be calculated seperately for general income & passive income.

	Tax	Income	Tax (%)
U.S .	7,80,000	20,00,000	39.00%

	Tax	Income	Tax (%)	Eligible Tax Credit
Foreign Source General	1,80,000	4,00,000	45.00%	1,56,000
Foreign Source Passive	30,000	1,50,000	20.00%	30,000
			Total	1,86,000

FTC of $186,000 will be utilised and remaining FTC of $24,000 shall be carryforward.

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