Triangle Health is a pharmaceutical firm located in North Carolina’s Research Triangle. Triangle Health this year acquired extensive foreign operations, so it is not concerned with foreign tax credit...

Triangle Health is a pharmaceutical firm located in North Carolina’s Research Triangle. Triangle Health this year acquired extensive foreign operations, so it is not concerned with foreign tax credit carry forwards or carry backs. In the current year, Triangle Health has $500 million of U.S.-source income and faces a 35% U.S. tax rate. Triangle Health’s U.S. tax return also includes $600 million of foreign-source income from Germany, on which Triangle Health has paid $300 million in German taxes. All of the German-source income falls in the general basket. Triangle Health also has $200 million in income from its Irish operations, on which Triangle Health has paid $20 million in Irish taxes. The total U.S. taxable income is therefore $1.3 billion ($500m + $600m + $200m). All of the Irish-source income falls in the general basket.

a. What is Triangle Health’s foreign tax credit and U.S. tax liability?

b. Now assume that instead of all falling in the general basket, the Irish income falls in a passive basket, with the German income in the general basket. What is Triangle Health’s foreign tax credit and U.S. tax liability?