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                                  1978   Taxable income of N Corporation:  U.S. sources................................     $100,000  Sources without the U.S.:    Amount required to be included in N             $80,000     Corporation's gross income under section     951(a)...................................    Foreign income taxes deemed paid by N            20,000      100,000     Corporation under section 960(a)(1) and     included in N Corporation's gross income     under section 78 ($20,000x$80,000/     $80,000).................................                                               -------------------------     Total taxable income.....................  ...........      200,000                                                            ============U.S. tax payable for 1978:  U.S. tax before credit ([$200,000x                 89,500   0.22]+[$175,000x0.26]).....................  Credit: Foreign income taxes of $20,000, but       20,000   not to exceed overall limitation of $44,750   ($89,500x$100,000/$200,000)................                                               --------------  U.S. tax payable............................       69,500                                               ============== 
                                  1979   Taxable income of N Corporation, consisting of income from       $25,000 U.S. sources..............................................U.S. tax before credit ($25,000x0.22).........        5,500Section 904(a)(2) overall limitation for 1979:  Limitation for 1979 before increase under               0   section 960(b)(1) ($5,500x$0/$25,000)......  Plus: Increase in overall limitation for   1979 under section 960(b)(1):    Amount by which 1978 overall limitation         $44,750     was increased by reason of inclusion in N     Corporation's gross income under section     951(a) for 1978 ($44,750 - [$41,500 x $0/     $100,000])...............................    Less: Foreign income taxes allowed as a          20,000     credit for 1978 which were allowable     solely by reason of such section 951(a)     inclusion ($20,000-$0)...................                                               -------------     Balance..................................       24,750    But: Such balance not to exceed foreign          10,000       10,000     income taxes paid by N Corporation for     1979 with respect to $80,000 distribution     excluded under section 959(a)(1) ($10,000     tax withheld)............................                                               -------------------------  Overall limitation for 1979..............................       10,000                                               ==============U.S. tax payable for 1979:  U.S. tax before credit ($25,000x0.22).......        5,500  Credit: Foreign income taxes of $10,000, but       10,000   not to exceed overall limitation of $10,000   for 1979...................................                                               --------------  U.S. tax payable............................         None                                               ==============Overpayment of tax for 1979:  Increase in limitation under section               10,000   960(b)(1) for 1979.........................  Less: Tax imposed for 1979 under chapter 1          5,500   of the Code................................                                               --------------  Excess treated as overpayment...............        4,500 

[T.D. 7120, 36 FR 10859, June 4, 1971, as amended by T.D. 7649, 44 FR 60089, Oct. 18, 1979]

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