A. Purpose of Limitation

The purpose of the foreign tax credit limitation is to confine the effects of the credit to mitigating double taxation of foreign-source taxable income.

The limitation accomplishes this by preventing U.S. persons operating in high tax foreign countries from offsetting those higher foreign taxes against the U.S. tax on U.S.-source taxable income.

Example # 1

Facts: USAco is a domestic corporation. During the current year, USAco has $ 200 of U.S.-source taxable income and $ 100 of foreign-source taxable income that is subject to Read More