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 ------------------------------------------------------------------------                                                       M           N------------------------------------------------------------------------Pretax earnings and profits.....................    $500,000  $1,200,000Foreign income taxes............................     200,000     400,000Earnings and profits............................     300,000     800,000Subpart F income................................     150,000     750,000------------------------------------------------------------------------

Apart from his section 951(a) income, A has gross income of $200,600 and $100,000 of deductions attributable to such income. He is required to include $90,000 (0.60×$150,000) in gross income under section 951(a) with respect to M Corporation and $600,000 (0.80×$750,000) with respect to N Corporation. A elects to have the provisions of section 962 apply for 1964 and computes his tax as follows:

  ----------------------------------------------------------------------------------------------------------------Tax on amounts included under section 951(a):  Income under section 951(a) from M Corporation................         $90,000  Gross-up under sections 960(a)(1) and 78 ($90,000/                      60,000   $300,000x$200,000)...........................................  Income under section 951(a) from N Corporation................         600,000  Gross-up under sections 960(a)(1) and 78 ($600,000/                    300,000   $800,000x$400,000)...........................................                                                                 ----------------  Taxable income under section 11...............................       1,050,000  Normal tax (0.22x$1,050,000)..................................................        $231,000  Surtax exemption ([$90,000+$600,000]/                                   21,036   [0.60x$300,000+(0.80x$800,000)]x$25,000).....................  Subject to surtax under section 11 ($1,050,000-$21,036).......       1,028,964  Surtax (0.28x$1,028,964)......................................................         288,110                                                                 ----------------  Tentative U.S. tax............................................         519,110  Foreign tax credit ($60,000+$300,000).........................         360,000                                                                 ----------------    Total U.S. tax payable on amounts included under section 951(a).............................        $159,110Tax with respect to other income:  Gross income..................................................................         200,600  Less:    Personal exemption..........................................             600    Deductions..................................................         100,000                                                                 -----------------                                                                         100,600                                                                                 ----------------  Taxable income................................................................         100,000  Tax with respect to such other taxable income.................  ..............          59,340                                                                                 -----------------    Total tax ($159,110+$59,340)................................................................         218,450----------------------------------------------------------------------------------------------------------------

[T.D. 6858, 30 FR 13695, Oct. 28, 1965, as amended by T.D. 7413, 41 FR 12640, Mar. 26, 1976]

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