Question

Emerald Corporation is a 100 percent owned Irish subsidiary of Shamrock, Inc., a U.S. corporation. Emerald had earnings and profits of $3,937,500 and paid foreign taxes of $525,000 in the current year. During the current year, Emerald paid a dividend of $787,500 to Shamrock. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of $39,375. Shamrock reported U.S. taxable income of $1,000,000 not including the dividend. Shamrock's U.S. tax rate is 34 percent. Compute Shamrock's U.S. tax before the foreign tax credit, net U.S. tax liability for the current year, and any excess FTC.

a. U.S. tax before the FTC

b. Net U.S. tax liability after the FTC

c. Excess FTC carryforward

Answer 1

Dividend	$787,500
sec-78 gross up(525,000/2,625,000 * 525,000)	$105,000
U.S Taxable Income	$1,000,000
Taxable Income	$1,892,500
Tax Rate	34%
Pre credit US Tax	$643,450
Less:Deemed paid credit	$105,000
less:Withholding Taxes	$39,375
Net US Tax	$499,075

Net U.S. tax of $499,075 with $0 excess FTC.The FTC limitation is computed as 892,500/1,892,500 × $643,450 = $303,450 and is not binding because the Irish tax rate is less than 34%.