Lili, Inc., a domestic corporation, operates a branch in France. The earnings re

ID: 2402956 • Letter: L

Question

Lili, Inc., a domestic corporation, operates a branch in France. The earnings record of the branch is as follows.

Lili, Inc., reports U.S.-source taxable income of $500,000 each year. Assume a 35% U.S. tax rate.

Round your answers to the nearest dollar.

Ignoring any recapture, what is the tentative FTC for year 4? $________

What is the allowed FTC for year 4 as the result of any recapture? $_______

Year Taxable Income (Loss) Foreign Taxes Paid 1 ($25,000) $0 2 (40,000) 0 3 (10,000) 0 4 $120,000 40,000

-FTC for year 4 =

taxable income [$500,000* 35%] - 175,000

tax paid -(40,000)

net tax liability = 135,000

-FTC recapture = $ 120,000* 35% -(40,000)

=$2,000

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