Under US Tax Law, What Happens to Excess Foreign Tax Credit

question 60

Multiple Choice

Under U.S. tax law, what happens to excess foreign tax credit?

• A) It reduces taxes on ordinary income in the current year.
• B) It can be carried back one year to calculate a refund on additional taxes paid in U.S. on foreign source income.
• C) It is lost unless the average foreign tax rate paid by the company in the future is greater than the U.S. tax rate.
• D) None of the above

---

Definitions:

Production Sector

A segment of the economy that includes the activities involving the manufacturing and production of goods.

Consumption Sector

Part of the economy that involves the purchase of goods and services by individuals and households.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing or the true yield on an investment.

Nominal Rate

The interest rate before adjustments for inflation, as opposed to the real rate, which is adjusted for the effects of inflation.