1. Chipco, a domestic corporation, produces the worldâ€™s best tasting chocolate chip cookies. In addition to its domestic sales, Chipco markets its cookies abroad through an extensive network of branch sales offices. Chipcoâ€™s operating results for the current year are summarized below, by source and type of income: U.S.-source manufacturing profits ………………………$60 million Foreign-source manufacturing profits ………………….$40 million Foreign-source passive investment income……….. $10 million U.S. taxable income……………………………………….. $110 million Chipco paid $15 million of foreign taxes on its foreign-source manufacturing profits and $2 million of foreign taxes on its foreign- source passive investment income. Assume that the U.S. tax rate is 35%. Compute Chipcoâ€™s total foreign tax credit, as well as the amount of excess credits (or excess limitation) in each separate basket of income.
2. Tenco, a domestic corporation, manufactures tennis rackets for sale in the United States and abroad. Tenco owns 100% of the stock of Teny, a foreign marketing subsidiary that was organized in Year 1. During Year 1, Teny had $15 million of foreign-based company sales income, paid $3 million in foreign income taxes, and distributed no dividends. During Year 2, Teny had no earnings and profits, paid no foreign income taxes, and distributed a $12 million dividend. Assuming the U.S. corporate tax rate is 35%, what are the U.S. tax consequences of Tenyâ€™s Year 1 and Year 2 activities?
3. Beatco, an accrual-basis domestic corporation, manufactures musical instruments for sale both in the United States and abroad. Beatcoâ€™s functional currency is the U.S. dollar. Two years ago, Beatco established a branch sales office in Switzerland. The sales office qualifies as a qualified business unit with the Swiss franc (SF) as its functional currency. The branchâ€™s tax attributes for its first 2 years of operations are as follows: Year 1 Year 2 Taxable income SF40 million None Foreign income taxes (paid at end of year) SF15 million None Remittance to Beatco (paid at end of year) None SF25 million -The Swiss franc had an average daily value of $0.50 during Year 1, $0.65 during Year 2, and was worth $0.60 at the end of Year 1, and $0.75 at the end of Year 2. – What are the U.S. tax consequences of the branchâ€™s activities in Year 1 and Year 2?
4. Joltco, a domestic corporation, manufactures batteries for sale in the United States and abroad. Joltco markets its batteries in Europe through its wholly-owned foreign marketing subsidiary, Jolti. Jolti was organized in Year 1, and its functional currency is the pound (Â£). Joltiâ€™s tax attributes for its first 2 years of operations are as follows: Year 1 Year 2 Taxable income Â£100 million None Foreign income taxes (paid at end of year) Â£20 million None Net Subpart F income (included in Â£100 million) Â£40 million None Actual dividend distributions (paid at end of year) None Â£8 million The pound had an average value of $1.50 during Year 1, $1.65 during Year 2, and was worth $1.60 at the end of Year 1, and $1.70 at the end of Year 2. What are the U.S. tax consequences of Joltiâ€™s results from operations in Year 1 and Year 2? Assume that the dividend distribution in Year 2 was not subject to foreign withholding taxes