Tucson, a U.S. corporation organized in Year 1, reports the following items for a three-year period.

The foreign source and worldwide taxable income items are determined under U.S. law.
a. What is Tucson's foreign tax credit limitation for each of the three years (assume a 34% U.S. corporate tax rate and that income from all foreign activities fall into a single basket)?
b. How are Tucson's excess foreign tax credits (if any) treated? Do any carryovers remain after Year 3?
c. How would your answers to Parts a and b change if the IRS determines that $100,000 of expenses allocated to U.S.-source income should have been allocated to foreign source income?
d. What measures should Tucson consider if it expects its current excess foreign tax credit position to persist in the long-run?

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Year 1 Year 2 Year 3 Foreign tax accrual Foreign source taxable income Worldwide taxable income S100,000 120,000 180,000 300,000 1,000,000 1,000,0001,000,000 400,000 500,000