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Exam 9: Taxation of International Transactions

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Question 1

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If Polka,Inc. ,a U.S.taxpayer,pays foreign taxes of $50,000 on foreign-source single-category (basket)income of $90,000 and has worldwide taxable income of $450,000,on which it owes U.S.taxes of $157,500 before FTC,its FTC is $50,000.

A) True
B) False

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Question 2

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

A) Repatriating more foreign income to the United States in the year there is an excess limitation.
B) Generating "same basket" foreign-source income that is subject to a tax rate lower than the U.S.tax rate.
C) Deducting the excess foreign taxes.
D) a. ,b. ,and c.

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

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Question 3

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The transfer of the assets of a foreign branch (of a U.S.corporation)to a newly formed foreign corporation is always tax deferred under § 351.

Madison 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 Madison treated as a U.S.resident for the current year?

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

The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

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

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

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

Disposition of stock of a domestic corporation that is a real property holding corporation is subject to tax under FIRPTA.

Yosef Barbutz,an NRA,is employed by Fisher,Inc. ,a foreign corporation.In November,Yosef spends 12 days in the United States performing consulting services for Fisher's U.S.branch.He earns $5,000 per month.A month includes 28 workdays.

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

Which of the following situations requires the filing of an information return with the U.S.government?

WorldCo,a foreign corporation not engaged in a U.S.trade or business,receives $50,000 in interest income from deposits with the foreign branch of a U.S.bank.The U.S.bank earns 78% of its income from foreign sources.How much of WorldCo's interest income is U.S.source?

Peanut,Inc. ,a domestic corporation,receives $500,000 of foreign-source interest income on which foreign taxes of $5,000 are withheld.Its worldwide taxable income is $900,000,and U.S.tax liability before FTC is $315,000.What is Peanut's foreign tax credit?

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 foreign-source income and suffers a net loss of $35,000 in the general limitation basket.What is the numerator of the FTC limitation formula for the passive basket in the current year?

Dividends received from Shamrock,Ltd. ,an Irish corporation that earns 40% of its income from U.S.business activities,are foreign-source income.

ForCo,a foreign corporation not engaged in a U.S.trade or business,recognizes a $3 million gain from the sale of land located in the United States.The amount realized on the sale was $50 million.Absent any exceptions,what is the required withholding amount on the part of the purchaser of this land?

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?

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