:eek: A us company Frank expand with a new co (Ana) formation into a foreign host company with a 20% tax on corporate income within its borders. At the end of its fourth yr of operations the foreign corp Ana distributes $100,000 to Frank from its earning and progits previously taxes by the host country. Under a favorable tax treaty, no taxes are withheld on the dividend payment. Frank has US taxable income of $400,000 from other sources. What is the amount of dividend income Frank must recognize as a result of this distribution as well as its US income tax liability after consideration of any foreign tax credit?

If I may suggest you re-post this question in the TAX Forum, you might get more responses.

I'm not entirely sure, looks like there's a lot of typos in the question. If you're getting too many typos you need to ask him to clairify the errors, and also request from the dean that a grad student go over all of this professor's work if it's really bad.

I'm working on similar problems right now (I think). This might be the answer, correct me if I'm wrong.

There is a 20% tax on income for 'ana.'

'Ana' transfers $100,000 of profits that have been taxed by the foreign gov.

Frank receives profits of $100,000 dividend income

Assuming the U.S. tax rate is 20% as well (which I believe should be given in the problem)

Frank recognizes only (100-20)% of the 100,000... = $80,000 and pays the other 20% in taxes to the U.S. gov.

BUT!

Your teacher said "no taxes are withheld on the dividend payment." I looked this up and concluded that the statement means...

"the U.S. does not take a cut of that dividend."

If this is true (and I'm not too sure about it) then,

Frank wouldn't be eligible for tax credits at all, would recognize all of the $100,000 dividend income, and recognize a income tax liability of $400,000


Is that a reasonable conclusion?