Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,00
ID: 2554267 • Letter: R
Question
Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in 2017. Taxable income included $1,800,000 of foreign source taxable income from the company's branch operations in Canada. All of the branch income is general category income. Reno paid Canadian income taxes of C$720,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover for 2017. Use a U.S. corporate tax rate of 34%. Assume an exchange rate of C$1 = $1.
Net U.S. tax liability after the FTC?
Foreign tax credit carryover?
Explanation / Answer
Answer
Reno Corporation's precredit U.S. tax ($6,000,000 x 34%) = $2,040,000.
Reno has creditable foreign taxes of $720,000.
The company's foreign tax credit limitation is computed as:
=$1,800,000 / $6,000,000 x $2,040,000
= $612,000
Hence,Reno's allowable foreign tax credit for 2011 is limited to $612,000,
creating an excess credit of $108,000, which can be carried back one year and carried forward 10 years.
Reno's net U.S. tax = $2,040,000 - $612,000
= $1,428,000.