- Your client is a U.S.-based company that owns a foreign subsidiary. Your client understands that there are foreign tax credits of which they may be able to take advantage. Based on the e-Activity, recommend a strategy to optimize the use of foreign tax credits.
- You are an IRS auditor and are auditing the foreign tax credits taken by a taxpayer in order to determine if there was any abuse of the foreign tax credits taken. Suggest the most likely abuse of foreign tax credits and measures that the IRS can take to minimize lost revenue resulting from abuse.
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Foreign tax credits are non-refundable tax credits for income taxes that are paid to a foreign government due to foreign tax withholdings. A Multinational Corporation needs to optimize the use of foreign tax credits. There are available investment tools that an organization can make creative use. The subsidiary should enter into an option spread transaction. It is possible through the decrease of expenses. A company should decrease the expenses that are attributed to the foreign source income. It would imply that the net foreign tax would increase. For this reason, the foreign tax limitation will increase. More foreign tax credits can be utilized in the reduction of the total tax expense (Diamond, & Diamond, 2013). Offshore financing transactions can also aid in the taking advantage of…