FOGEI taxes paid or accrued by the payor/Total foreign taxes paid or accrued by the payor.
For purposes of these determinations, dividends are deemed to be paid first out of FOGEI and total accumulated profits that arose in taxable years beginning after December 31, 1986. See § 1.907(c)-2(d)(1)(i) . See section 960(a)(3) and § 1.960-2 relating to distributions that are treated as dividends for purposes of section 902.
Taxes in the fraction in this paragraph (c)(2) include only those foreign taxes that may be deemed paid under section 960(a) by reason of such inclusion. See §§ 1.960-1(c)(3) and 1.960-2(c) .
Sales | $12.00 | |
Royalties | $1.44 | |
Lifting | .20 | |
Transporting | .80 | |
2.44 | (2.44) | |
Income base | 9.56 | |
Tax rate (percent) | .50 | |
Tax | 4.78 |
Assume that these taxes are creditable taxes under section 901, that the fair market value of the oil at the port is $10 per barrel, and that under § 1.907(c)-1(b)(6) fair market value in the immediate vicinity of the oil wells is $9 per barrel. Thus, at the port, the excess of posted price ($12) over fair market value ($10) is $2.
FOGEI | FORI | |
Modified gross income | $11.00 | $1.00 |
Deductions: | ||
Royalties | 1.44 | 0 |
Lifting | .20 | 0 |
Transporting | 0 | .80 |
Total | 1.64 | .80 |
Net Income | 9.36 | .20 |
FOGEI tax = $4.78 * $9.36/$9.56 = $4.68
FORI tax = $4.78 * $0.20/$9.56 = $0.10
Thus, for the 10,000,000 barrels, the FOGEI tax is $46,800,000 and the FORI tax is $1,000,000.
(1) Taxable income | $95,600,000 |
(2) Tax: | |
(a) 40% of $20,000,000 | 8,000,000 |
(b) 60% of $75,600,000 | 45,360,000 |
(c) Total tax | 53,360,000 |
(3) FOGEI tax (line 2(c) * $9.36/$9.56) | 52,243,680 |
(4) FORI tax (line 2(c) * $0.20/$9.56) | 1,116,320 |
26 C.F.R. §1.907(c)-3