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Exam 9: Taxation of International Transactions

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Question 21

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Freiburg, Ltd., a foreign corporation, operates a U.S. branch that reports effectively connected U.S. earnings and profits (after income taxes) of $900,000 for the tax year. The branch's U.S. net equity at the beginning of the tax year is $3.5 million and at the end of the tax year is $2 million. Freiburg is organized in a nontreaty country. Compute Freiburg's branch profits tax for the year.

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The branch profits tax is equal to 30% o...

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Question 22

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The following income of a foreign corporation is not subject to the regular U.S. corporate income tax rates.

A) FIRPTA gains.
B) Capital gains effectively connected with a U.S. trade or business.
C) Net long-term capital gains, where no U.S. trade or business exists.
D) Fixed, determinable, annual or periodic (FDAP) income effectively connected with a U.S. trade or business.

E) B) and C)
F) C) and D)

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Question 23

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Waldo, Inc., a U.S. corporation, owns 100% of Orion, Ltd., a foreign corporation. Orion earns only general basket income. During the current year, Orion paid Waldo a $5,000 dividend. The foreign tax credit associated with this dividend is $3,000. The foreign jurisdiction requires a withholding tax of 10%, so Waldo received only $4,500 in cash as a result of the dividend. What is Waldo's total U.S. gross income reported as a result of the $4,500 cash received?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Upon repatriation to a CFC, it does not create dividend income.

U.S. income tax treaties typically:

Match the definition with the correct term. -A business operation that accounts for profits and losses using its functional currency.

ForCo, a non-U.S. corporation based in Aldonza, purchases widgets from USCo, Inc., its U.S. parent corporation. The widgets are sold by ForCo to an unrelated foreign corporation in Aldonza. The income from sale of the widgets by ForCo is Subpart F foreign base company sales income.

Match the definition with the correct term. -An individual who gives up U.S. citizenship to avoid U.S. income taxes.

USCo, a U.S. corporation, reports worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings. What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

Given the following information, determine if FanCo, a foreign corporation, is a CFC. $\begin{array}{lcl}\text { Shareholders of } & \text { Voting } & \\\text { foreign corp oration } & \text { power } & \text { Classification } \\\text { Murray } & 24 \% & \text { U.S. person } \\\text { Nancy } & 20 \% & \text { U.S. person } \\\text { Otto } & 40 \% & \text { Foreign person } \\\text { Patricia } & 16 \% & \text { U.S. person }\end{array}$ Patricia is Murray's daughter.

"Inbound" and "offshore" asset transfers by a U.S. business can be subject to immediate Federal income taxation under § 367.

Which of the following statements regarding the U.S. taxation of non-U.S. persons is true?

The U.S. system for taxing income earned inside its borders by non-U.S. persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

In working with the foreign tax credit, a U.S. corporation may be able to alleviate the problem of excess foreign taxes by:

Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia's gross income related to the Starke dividend?

Income tax treaties provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A CFC's profits from sales of goods and services.

Carol, a citizen and resident of Adagio, reports gross income that is effectively connected with a U.S. business. No deductions are allowed against this income, and Carol's U.S. tax rate is a flat 30 percent.

Your client holds foreign tax credit (FTC) carryforwards, i.e., it is in an "excess credit" position. Give at least three planning ideas that the client should implement, so as to free up the suspended FTCs.

In which of the following independent situations would Slane, a foreign corporation, be classified as a controlled foreign corporation? The Slane stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.