Question - During the current year, Domco had $100 million of sales, a gross profit of $40 million, and incurred $30 million of selling, general and administrative expenses (SG&A), for taxable income of $10 million. Domco's sales include $20 million of sales to foreign customers. The gross profit on these foreign sales was $10 million. Domco transferred title abroad on all foreign sales, and therefore the entire $10 million is classified as foreign-source income. A time management survey was recently completed, and indicates that employees devote 90% of their time to the company's domestic operations and 10% to foreign operations. Compensation expenses account for $20 million of the $30 million of total SG&A expenses. Assume Domco's $10 million of taxable income is subject to U.S. tax at a 35% rate.
Compute Domco's foreign tax credit limitation under the following independent assumptions.