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arnie - on December 31 of Year 1 and filed his Year 1 U.S...

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C:16-39 Translation of Foreign Tax Payments. Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z. In Year 1, he reports 500,000 doubles of pretax profits. On June 1 of Year 2, he pays Country Z income taxes of 150,000 doubles for calendar Year 1. Double-U.S. dollar exchange rates on various dates in Year 1 and Year 2 are as follows: December 31, Year 1 4.00 doubles $1 (U.S.) Year 1 average 3.75 doubles $1 (U.S.) June 1, Year 2 4.25 doubles $1 (U.S.) a. What is the U.S. dollar amount of Arnie’s foreign tax credit? In what year can Arnie claim the credit? b. How would your answer to Part a change if Arnie elected to accrue his foreign income taxes
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Unformatted text preview: on December 31 of Year 1, and filed his Year 1 U.S. income tax return on April 15 of Year 2? c. What adjustment to the credit claimed in Part b would Arnie have to make when he pays his Country Z taxes on June 1 of Year 2? a. 150,000 doubles/4.25 doubles per $1 U.S. = $35,294 foreign tax credit. The credit benefit is available in Year 2 if Arnie claims the foreign taxes as a credit in the year he pays the taxes. b. 150,000 doubles/3.75 doubles per $1 U.S. = $40,000 foreign tax credit that Arnie can claim in Year 1. This amount is reported on Arnie's Year 1 tax return. c. No adjustment is required because Arnie paid the taxes within two years after the close of the tax year to which the taxes relate....
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