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Exam 9: Taxation of International Transactions

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Question 31

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Losses and deductions, similar to income items, can be U.S.- or foreign-source.

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B) False

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Question 32

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Match the definition with the correct term.

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Question 33

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Match the definition with the correct term.

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.

Arendt, Inc., a domestic corporation, purchases a piece of equipment for use in its manufacture of custom pianos. The equipment is acquired in Ireland at a cost of 200,000 euros when 1 euro: $1.25. Payment is due in 90 days. Arendt acquires 200,000 euros and pays for the machine when 1 euro: $1.15. What is the basis of the asset to Arendt and what is the foreign currency exchange gain or loss, if any?

RedCo, a domestic corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. RedCo transfers $200 in Yen (basis = $150) and $900 in land (basis = $925) to GreenCo. GreenCo uses these assets in carrying on a trade or business outside the United States. What gain or loss, if any, is recognized as a result of this transaction?

Which of the following income items does not represent Subpart F income if earned by a controlled foreign corporation? Purchase of inventory from the U.S. parent, followed by:

Present, Inc., a domestic corporation, owns 60% of the stock of Past, Inc., a foreign corporation. For the current year, Present receives a dividend of $80,000 from Past. Past's pools of post-'86 E & P (after taxes) and foreign taxes are $4,000,000 and $500,000, respectively. What is Present's total gross income from this dividend if it elects to claim the FTC for deemed-paid foreign taxes?

Fulton, Ltd., a foreign corporation, operates a U.S. branch that reports effectively connected U.S. earnings and profits (after income taxes) of $600,000 for the tax year. The branch's U.S. net equity at the beginning of the tax year is $2 million and at the end of the tax year is $1.5 million. Fulton is organized in a nontreaty country. Fulton's dividend equivalent amount for the year is:

ForCo, a subsidiary of a U.S. corporation incorporated in Belgium, manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany. The income from the sale of widgets is not Subpart F foreign base company sales income.

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha. The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien. Julio recognizes foreign-source income from the sale because his home country is not the U.S.

The U.S. system for taxing income earned outside its borders by U.S. persons is referred to as the territorial approach because only income earned within the U.S. border is subject to taxation.

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

Kipp, a U.S. shareholder under the CFC provisions, owns 40% of a CFC. If the CFC's Subpart F income for the taxable year is $200,000, Kipp is not taxed on receipt of a constructive dividend of $80,000 because he doesn't own more than 50% of the CFC.

During 2012, Martina, an NRA, receives interest income of $50,000 from Collins, Inc., an unrelated U.S. corporation. Considering the following facts related to Collins' operations, what is the source of the interest income received by Martina?

Generally, accrued foreign taxes are:

Performance, Inc., a U.S. corporation, owns 100% of Krumb, Ltd., a foreign corporation. Krumb earns only general basket income. During the current year, Krumb paid Performance a $200,000 dividend. The foreign tax credit associated with this dividend is $30,000. The foreign jurisdiction requires a withholding tax of 30%, so Performance received only $140,000 in cash as a result of the dividend. What is Performance's total U.S. gross income reported as a result of the $140,000 cash received?

Britta, Inc., a U.S. corporation, reports foreign-source income and pays foreign taxes as follows. Britta's worldwide taxable income is $1,600,000 and U.S. taxes before FTC are $560,000 (assume a 35% tax rate). What is Britta's U.S. tax liability after the FTC?

Which of the following persons typically is not concerned with the U.S.-sourcing rules for gross income?

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.