Page 747 - Large Business IRS Training Guides

Example 3: Foreign income taxes deemed paid
under section 960(a)(1) with respect
to a section

965(a) inclusion – lower-tier
CFC

All corporations have • USP’s section 965(a) inclusion
a 12/31/17 tax year. amount

with respect to CFC2 is: $200
USP All corporations have
a U.S. dollar functional • USP’s deemed paid taxes before
currency disallowance are (S.960(a)(1)):

S. 965(a) inclusion x Post-1986 foreign

CFC1 • CFC1 DFI: $0 Post-1986 undistributed earnings income taxes

Cty Y • CFC1 Post-1986 foreign
income taxes: $0 (S.902(c)(2)) $200 X $40 = $40
$200

CFC2 • CFC2 DFI: $200 • USP’s applicable percentage is:
CFC2 Cash: $120
•
Cty X • CFC2 Post-1986 undistributed (($120 / $200) * 55.7%) + (($80 / $200) * 77.1%) = 64.26%

• earnings: $200 (S.902(c)(1))

• CFC2 Post-1986 foreign • Before considering the foreign tax
• income taxes: $40 (S.902(c)(2))
credit limitation, USP’s allowed
deemed paid taxes are:

$40 x (1-64.26%) = $14.30

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