Exam 16: Us Taxation of Foreign-Related Transactions

Julia, an accrual-method taxpayer, is a U.S. citizen and a resident of a foreign country. Her tax year for both countries is a calendar year. Julia accrues 50,000 coras for the foreign country tax liability on December 31 of last year when the exchange rate is one cora = $1. Julia pays the tax to the foreign country on its due date, March 1 of the current year. The exchange rate on that date is one cora = $1.50. Julia files her U.S. tax return for last year on April 15 of the current year when the exchange rate is one cora = $2. Julia's foreign tax credit is

A taxpayer may make the election to either deduct or take a credit for foreign income taxes

Compare the foreign tax payment claimed as a deduction versus a similar payment claimed as a credit. Create an example to demonstrate the tax effect. Use 28% as the marginal tax rate in your example.

U.S. shareholders are not taxed on dividends paid by a foreign subsidiary as long as the earnings are not remitted to them as dividends.

Nonresident aliens are not allowed to claim the standard deduction.

Alan, a U.S. citizen, works in Germany and earns $70,000, paying $20,000 in German taxes. His U.S. income is $40,000 and he pays $8,000 in U.S. taxes. His U.S. taxes on his worldwide income are $22,500. What is Alan's excess foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion.

Quality Corporation created a foreign subsidiary in Country C this year. The subsidiary receives components from Quality, assembles the components into a finished product using local labor, and sells them to unrelated wholesalers in Countries A, B, and C using its own sales force. The foreign subsidiary has paid no dividends to the parent this year. What tax issues should Quality's Director of Taxes consider with respect to these activities?

What is a corporate inversion and why was this provision enacted?

A taxpayer who is physically present in a foreign country for 330 full days out of a 12-month period and maintains a tax home there has satisfied the bona fide foreign resident test.

Describe the financial statement implications of the foreign tax credit and a foreign subsidiary.

Which of the following is required in order for a transaction to be considered a corporate inversion?

Identify which of the following statements is true.

Karen, a U.S. citizen, earns $40,000 of taxable income from U.S. sources, $20,000 in taxable wages from Country A and $20,000 in taxable interest from Country B. The U.S. tax rate is 21%. The tax on Country A income is $8,000, and Country B charges no tax on the interest income. Assuming only a single basket is required, Karen's foreign tax credit that can be claimed is

Music Corporation is a CFC incorporated in Country M. Music receives interest and dividends from its two foreign subsidiary corporations, Sharp Corporation and Flat Corporation. Sharp is incorporated in Country S and conducts all of its activities in that country. Flat is incorporated in Country M and conducts all of its activities in that country. Are the interest and dividends received by Music Corporation FPHCI?

U.S. citizens, resident aliens, and domestic corporations are taxed by the U.S. government on their worldwide income at regular U.S. tax rates.

Which of the following characteristics is not used by the U.S. government to determine the tax treatment accorded foreign-related transactions?

Which of the following statements is incorrect?

A foreign corporation with a single class of stock is owned 8% by Bert, 49% by Xi Yong, 30% by Ernie, and 13% by Mark. Bert, Ernie, and Mark are U.S. citizens, and Xi Yong is a nonresident alien. Bert is Ernie's son. Is the foreign corporation a controlled foreign corporation (CFC)?

Ashley, a U.S. citizen, works in England for part of the year. She earns $40,000 in England, paying $10,000 in income taxes to the British government. Her U.S. income is $60,000 and she pays $12,000 in U.S. taxes. Her U.S. taxes on her worldwide income are $20,000. What is Ashley's excess foreign tax credit? Assume she does not qualify for the foreign-earned income exclusion.

Discuss the Sec. 482 rules concerning the sale of goods and services between a domestic parent corporation and a foreign subsidiary at a lower-than-normal price.