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Exam 9: Taxation of International Transactions

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Question 31

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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?

A) Using tax book values.
B) Using tax book value for U.S. source and fair market value for foreign source.
C) Using fair market values.
D) Using fair market value for U.S. source and tax book value for foreign source.

E) A) and B)
F) None of the above

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Question 32

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A controlled foreign corporation (CFC) realizes Subpart F income from:

A) Purchase of inventory from unrelated U.S. person and sale outside the CFC country.
B) Purchase of inventory from a related U.S. person and sale outside the CFC country.
C) Services performed for the U.S. parent in a country in which the CFC was organized.
D) Services performed on behalf of an unrelated party in a country outside the country in which the CFC was organized.

E) C) and D)
F) A) and C)

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Question 33

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Which of the following statements regarding a non-U.S. person's U.S. tax consequences is true?

Wood, a U.S. corporation, owns 30% of Hout, a foreign corporation. The remaining 70% of Hout is owned by other foreign corporations not controlled by Wood. Hout's functional currency is the euro. Wood receives a 50,000€ distribution from Hout. If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1, the exchange rate at year end is .95€: $1, and on the date of the dividend payment the exchange rate is 1.1€: $1, what is Wood's tax result from the distribution?

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?

An advance pricing agreement (APA) is used between:

U.S. individuals who receive dividends from foreign corporations may claim the deemed-paid foreign tax credit related to such dividends.

Match the definition with the correct term -Bilateral agreement between two countries related to tax issues.

Xenia, Inc., a U.S. shareholder, owns 100% of Fredonia, a CFC. Xenia receives a $3 million cash distribution from Fredonia. Fredonia's E & P is composed of the following amounts. ∙ $500,000 attributable to previously taxed increases in investment in U.S. property. ∙ $1,500,000 attributable to previously taxed Subpart F income. ∙ $4,800,000 attributable to other E & P. Xenia recognizes a taxable dividend of:

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?

Which of the following is not a U.S. person?

Which of the following statements is true, regarding the sourcing of dividend income?

USCo, a U.S. corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld. Its worldwide taxable income is $1,500,000 and its U.S. tax liability before the foreign tax credit is $525,000. What is USCo's allowed foreign tax credit?

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.

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.

Unused foreign tax credits are carried back two years and then forward 20 years.

Freda was born and continues to live in Uruguay. She exports widgets to U.S. customers. The U.S. does not have in force an income tax treaty with Uruguay. Freda's net U.S. income from the widgets is subject to a flat 30% Federal income tax rate.

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

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

Dividends received from Murdock Corp., a corporation organized in Sustenato that earns 70% of its income from U.S. business activities, are 70% U.S.-source income.