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Exam 9: Taxation of International Transactions

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Question 1

True/False

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The "residence of seller" rule is used in determining the sourcing of all gross income and deductions of a U.S.multinational business.

A) True
B) False

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Question 2

True/False

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Nico lives in California.She was born in Peru but holds a green card.Nico is a nonresident alien (NRA).

A) True
B) False

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Question 3

Multiple Choice

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Kunst,a domestic corporation,generates $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket.Kunst's worldwide taxable income is $1,200,000,and its U.S.tax liability before FTC is $420,000.Foreign taxes attributable to the general income basket are $60,000 and to the passive income are $4,000.What is Kunst's foreign tax credit for the tax year?

The United States has in force income tax treaties with about 70 countries.

Which of the following statements concerning the sourcing of income from inventory produced by the taxpayer in the U.S.and sold outside the U.S.is true?

Dark,Inc. ,a U.S.corporation,operates Dunkel,an unincorporated branch manufacturing operation in Germany.Dark reports $100,000 of taxable income from Dunkel on its U.S.tax return,along with $400,000 of taxable income from its U.S.operations.Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income.Assuming a U.S.tax rate of 35%,what is Dark's U.S.tax liability after any allowable foreign tax credits?

A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly,indirectly,and constructively at least 50% of the voting power of a foreign corporation.

GlobalCo,a foreign corporation not engaged in a U.S.trade or business,receives $80,000 in interest income from deposits with the foreign branch of a U.S.bank.The U.S.bank earns 24% of its income from foreign sources.How much of GlobalCo's interest income is U.S.source?

Jilt,a non-U.S.corporation,not resident in a treaty country,operates a U.S.branch that earns effectively connected E & P of $4 million for the tax year.The branch increases its investments in U.S.property (its U.S.net equity) by $1,600,000.The branch pays a U.S.corporate income tax of $2,153,846.Jilt's branch profits tax is:

Magdala is a citizen of Italy and does not have permanent resident status in the United States.During the last three years she has spent a number of days in the United States. Is Magdala treated as a U.S.resident for the current year?

Jokerz,a CFC of a U.S.parent,generated $80,000 of Subpart F foreign base company services income in its first year of operations.The next year,Jokerz distributes $50,000 cash to the parent,from those service profits.The parent is taxed on $80,000 in the first year and $50,000 in the second year.

Copp,Inc. ,a domestic corporation,owns 30% of a CFC that has $50 million of earnings and profits for the current year.Included in that amount is $20 million of Subpart F income.Copp has been a CFC for the entire year and makes no distributions in the current year.Copp must include in gross income (before any § 78 gross-up) :

USCo,a domestic 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) ?

Which of the following transactions by a U.S.corporation may result in taxation under § 367?

Qwan,a U.S.corporation,reports $250,000 interest expense for the tax year.None of the interest relates to nonrecourse debt or loans from affiliated corporations.Qwan's U.S.and foreign assets are reported as follows. How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

GreenCo,a domestic corporation,earns $25 million of taxable income from U.S.sources and $5 million of taxable income from foreign sources.What amount of taxable income does GreenCo report on its U.S.tax return?

ForCo,a foreign corporation,receives interest income of $100,000 from USCo,an unrelated domestic corporation.USCo has historically earned 85% of its income from foreign sources.What amount of ForCo's interest income is U.S.source?

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?

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

Old,Inc. ,a U.S.corporation,earns foreign-source income classified in two different limitation baskets in the current year.It earns $20,000 in passive income and suffers a net loss of $45,000 in the general limitation basket.What is the numerator of the FTC limitation formula for the passive basket in the current year?