I have a 902 question that can someone clarify please?

A single owner US "S" corp is the sole shareholder in a foreign company taxable as a corp under US rules. The S corp receives a dividend of 170,000 from the foreign company, net of 30,000 withholding tax paid to the foreign government. 200,000 of income paid out represents the company total EP. The tax rate in the foreign jurisdcition is 50%. What is the creditable foreign tax to the owner for US tax purposes before the application of 904.
902 credit
User Photo
Brett Thompson, JD, CPA
Couple questions. I assume then that the Foreign Corp earned $400,000 and that foreign taxes on it was at 50% or $200,000 to arrive at the E&P of $200,000. Was this in one year? (what I am asking is if I have a 26 CFR 1.960-2 problem & assuming no). Is there an IC-DISC in here somewhere? Although I have not seen an S Corp (nor does §902 address it, but it does talk about partnerships in the Rev Rul/Proc so I assume the pass through is valid...but need to check). So, you are going to have to file a tax return in the foreign jurisdiction to determine the actual tax, but without more you as a cash basis taxpayer at $30K, unless we can say its accrued. That's a stretch. Are you sure its a "creditable tax" in line with our tax structure? Is there a treaty? (I'm assuming no) Is there any kind of establishment in the US that might attract "effectively connected" problems.
Reply 46 weeks ago
TaxConnections Members... Answer This Question Want To be One of Our Tax Experts? Register Here

Tax Professional Answers

User Photo
Brett Thompson, JD, CPA
DISCLAIMER. This information should not, and is not, legal advice and is solely for purposes of discussion. Every fact pattern is unique. The law in this area changes rapidly and no representations are made as to its accuracy, efficacy or timeliness are made. Readers must engage competent and experienced counsel regarding their specific circumstances.

The question is beyond an answer that can be addressed here. You will have to seek competent counsel. First, I have found one reference stating, "A domestic shareholder entitled to claim a deem-paid credit is a shareholder...., other than an S Corporation." I have reservations as to whether you qualify for the deemed FTC. The formula is simple enough. You multiply the income tax paid by the foreign corporation by the Dividends, divided by undistributed earnings. You must seek competent counsel and no opinion can be arrived at.
Leave a Comment 46 weeks ago

Meet Leading Tax Advisors

User Photo Peter J. Scalise

Federal Tax Credits & Incentives Practice Leader

New York, NY

User Photo John L Stancil

Tax Advisor/CEO

Lakeland, FL

User Photo John R Dundon, II EA

Tax Director

Denver, CO

User Photo Kevin Johnson MS, JD, LL.M, CPA


Philadelphia, PA

User Photo Brian Weaver, CPA, MBA

Managing Tax Consultant

Des Plaines, IL

User Photo William Rogers, CFP, MBA, EA

Rancho Santa Fe, CA


User Photo Clinton J Donnelly, LLM

International Tax Advisor

Panama City, Panama

User Photo Jim Marshall, EA

President/ Tax And Financial Advisor

Scottsdale, AZ

User Photo Brett A Thompson, JD, CPA

Managing Tax Lawyer

Katy, TX

User Photo Charles Woodson, EA

Tax Advisor/Fiduciary Coach

San Diego, CA

User Photo John Richardson

Tax Lawyer

Toronto, Canada

User Photo Clifford Benjamin

Senior Tax Principal

Daytona Beach, FL

User Photo Kazim Qasim, EA, CTC

Managing Tax Advisor/CEO

Orlando, FL


View/Select our Current List of Tax Topics

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Previous PageNext Page



Learn from tax advisors, straight to your inbox

Update My Email Address
Contact Us Today