TAX 9869 Lecture Notes - Lecture 31: Tax Treaty, Intangible Property, Tax Rate

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17 Jul 2020
Department
Course
Professor
Class 5: 6/22/2020
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One has a choice to take credit or deduction
In the same year you cannot do both!
Cannot take a credit for some FT and deduction for other FT (foreign
taxes)
Every year its a choice (credit or deduction)
Ex: talked about FTC limitation. Can only take FTC against US tax
liab on foreign source income
Must have FSI
Lets say not enough FSI (you are limited)- you have excess
credits → carryback 1 yr/fwd 10.
Prof. Formula: FTC limitation: FSI * effective US tax rate (THIS WILL
BE ON EXAM)
(this isnt in IRC)
This is the formula used IRL; actual formula in code is different
Net FSI= foreign source income - deductions
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IRC Formula: FSI (net)/Worldwide Income * US Tax you have to pay
EX: Person’s FSI = 1000, Worldwide income = 5000, US tax to pay =
2000
IRC Formula: 1000/5000 * 2,000 = 20% * 2,000 = 400
So limitation will be $400. That's the amount of foreign tax
you can take
40% Tax rate = effective tax rate bc (2000/5000=40%)
Prof Formula: FSI * effective US tax rate = 1000 * 40% = 400
Both formulas = same result
US ETR will be given
Take your tax liab/ taxable income = ETR (Effective tax rate)
Any question w/ a corp = 21%
Individ = 37%
Highest corp and individual rates
FTC limit is further broken down by baskets
This means that you have not only to figure out what FSI is but you
also must figure out which basket the FSI goes into
Baskets further limit amount of foreign taxes you can take
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