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Exam 25: Taxation of International Transactions

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Question 41

True/False

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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.

A) True
B) False

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Question 42

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Which of the following statements regarding foreign persons not engaged in a U.S.trade or business is true?

A) Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income.
B) Foreign persons with any U.S.-source income are taxed on net investment income (after expenses) .
C) Foreign persons are not subject to U.S.tax if not engaged in a U.S.trade or business.
D) Foreign persons with only U.S.-source investment income are exempt from U.S.tax.
E) None of the above statements are true.

F) A) and D)
G) B) and E)

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Question 43

Multiple Choice

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A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

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

WaterCo, a domestic corporation, purchases inventory for resale from unrelated distributors outside the United States and resells this inventory to customers inside the United States with title passing inside the United States.What is the source of WaterCo's inventory sales income?

Peanut, Inc., a domestic corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of $5,000 are withheld.Peanut's worldwide taxable income is $900,000, and its U.S.Federal income tax liability before FTC is $270,000.What is Peanut's foreign tax credit?

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 Urugauy. Freda's net U.S.income from the widgets is subject to a flat 30% Federal income tax rate.

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

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.

A domestic corporation is one whose assets are primarily (> 50%) located in the U.S.

In allocating interest expense between U.S.and foreign sources, a taxpayer must use the tax basis of the income-producing assets.

A tax haven often is:

Which of the following transactions, if entered into by an NRA, is not subject to U.S.taxation?

Which of the following foreign taxes paid by a U.S.corporation may be eligible for the foreign tax credit?

Unused foreign tax credits are carried back one year and then forward 10 years.

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.

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. Xenia recognizes a taxable dividend of:

Waltz, Inc., a U.S.taxpayer, pays foreign taxes of $50,000 on foreign-source general basket income of $90,000. Waltz's worldwide taxable income is $450,000, on which it owes U.S.taxes of $157,500 before FTC. Waltz's FTC is $50,000.

Which of the following statements regarding the taxation of U.S.real property gains recognized by foreign persons not engaged in a U.S.trade or business is false? Gains from the disposition of U.S.real property are:

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?