Windmill Corporation manufactures products in its plants in Iowa, Canada, Ireland, and Australia. Windmill conducts its operations in Canada through a 50 percent owned joint venture, CanCo. CanCo is treated as a corporation for U. S. and Canadian tax purposes. An unrelated Canadian investor owns the remaining 50 percent. Windmill conducts its operations in Ireland through a wholly owned subsidiary, IrishCo. IrishCo is a controlled foreign corporation for U. S. tax purposes. Windmill conducts its operations in Australia through a wholly owned hybrid entity (KiwiCo) treated as a branch for U. S. tax purposes and a corporation for Australian tax purposes. Windmill also owns a 5 percent interest in a Dutch corporation (TulipCo). During 2015, Windmill reported the following foreign source income from its international operations and investments.
CanCo IrishCo KiwiCo TulipCo
Dividend income
Amount $45,000 $28,000 $20,000
Withholding tax 2,250 1,400 3,000
Interest income
Amount $30,000
Withholding tax 0 0
Branch income
Taxable income $93,000
AUS income taxes $31,000
Notes to the table:
1. CanCo and KiwiCo derive all of their earnings from active business operations.
2. The dividend from CanCo carries with it a deemed paid credit (§78 gross-up) of $30,000.
3. The dividend from IrishCo carries with it a deemed paid credit (§78 gross-up) of $4,000.
a. Classify the income received by Windmill and any associated §78 gross-up into the appropriate FTC baskets.
b. Windmill has $1,250,000 of U. S. source gross income. Windmill also incurred SG&A of $300,000 that is apportioned between U. S. and foreign source income based on the gross income in each basket. Assume KiwiCo’s gross income is $93,000. Compute the FTC limitation for each basket of foreign source income. The corporate tax rate is 35 percent. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)