Question

USCo manufactures and markets electrical components. USCo operates outside the United States through a number of CFCs, each of which is organized in a different country. These CFCs derived the following income for the current year:

Determine the amount of income that USCo must report as a deemed dividend under subpart F in each scenario. (Leave no answer blank. Enter zero if applicable. Enter your answers in millions.)
a. F1 has gross income of $14.00 million, including $700,000 of foreign personal holding company interest and $13.30 million of gross income from the sale of inventory that F1 manufactured at a factory located within its home country.
b. F2 has gross income of $8.6 million, including $6.9 million of foreign personal holding company interest and $1.7 million of gross income from the sale of inventory that F2 manufactured at a factory located within its home country.

Answer 1

A. $26.6 million

B. $3.4 million

Step-by-step explanation:

A. Calculation to determine the amount of income that USCo must report as a deemed dividend under subpart F

Using this formula

Income to be redeemed=(Gross income -Foreign personal holding company interest+Gross income from the sale of inventory)

Let plug in the formula

Income to be redeemed=($14.00 million-$700,000+$13.30 million)

Income to be redeemed=$26.6million

Therefore the amount of income that USCo must report as a deemed dividend under subpart F is $26.6million

B. Calculation to determine the amount of income that USCo must report as a deemed dividend under subpart F

Using this formula

Income to be redeemed=

Gross income -Foreign personal holding company interest +Gross income from the sale of inventory

Let Plug in the formula

Income to be redeemed=($8.6 million-$6.9 million+$1.7 million)

Income to be redeemed=$3.4milliomln

Therefore the amount of income that USCo must report as a deemed dividend under subpart F is $3.4million