Question 1

Identify which of the following statements is true.
A) Under the Subpart F rules, controlled foreign corporations (CFCs) are required to distribute a certain portion of their income as dividends to their U.S. shareholders.
B) When a controlled foreign corporation (CFC) earns Subpart F income, such income is considered to be a constructive distribution to the CFC's U.S. shareholders on the last day of the CFC's tax year, or the last day on which CFC status is retained.
C) For a foreign corporation to be a controlled foreign corporation (CFC), more than 40% of its voting stock, or more than 40% of the value of its outstanding stock, must be owned by U.S. shareholders on any day of the corporation's tax year.
D) All of the above are true.

Accepted Answer

B

Question 2

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.

Accepted Answer

A) True 
 B)False  True

Question 3

In January of the current year, Stan Signowski's U.S. employer assigned him to their Paris office. This year, he earned salary, a cost- of- living allowance, a housing allowance, a home leave allowance that permits him to return home once each year, and an education allowance to pay for U.S. schooling for his son. Stan and his wife, Jennifer, have rented an apartment in Paris and paid French income taxes. What tax issues does Stan need to consider when preparing his tax return?

Accepted Answer

the Sec. 911 limitation (calculated on a daily basis). In addition, Stan can claim an exclusion for the housing cost amount minus the base amount (calculated on a daily basis). Both exclusions are denied for the portion of Stan's salary and allowances attributable to his time in the United States. The portion of his employment- related expenses and foreign taxes attributable to the excluded income are unable to be deducted or credited. The foreign- earned income exclusion and housing cost amount exclusion are both elected by claiming such amounts on Form 2555.
Not knowing the amount of the foreign income taxes, and other components of Stan's tax return, it is impo to know whether Stan should elect out of the Sec. 911 exclusion. Stan may have spent a sufficient number in the United States on his trip home to need to qualify for the foreign- earned income exclusion under the bona fide foreign resident rules. In such case, he will not qualify for the exclusion until the end of this second calendar year in France. The exclusion would then be available retroactively back to the date on which he established foreign residency status.

Question 4

Perry, a U.S. citizen, is transferred by his employer to Japan for a three- year assignment. Which one of the following items is not excluded under Sec. 911?

Accepted Answer

A)   base salary
B)   premiums paid on first $50,000 of group term life insurance
C)   cost- of- living allowance
D)   housing costs

Question 5

Compare the U.S. tax treatment of a nonresident alien and a resident alien, both of whom earn U.S. trade or business and U.S. investment income.

Accepted Answer

The answer of Compare the U.S. tax treatment of a...

Question 6

Identify which of the following statements is true.

Accepted Answer

A)   When a cash- basis taxpayer elects to take a credit for accrued foreign income taxes, certain other income and expense items must likewise be accrued.
B)   A nonresident alien can elect to be considered a resident alien if the nonresident alien is married to a U.S. citizen or a resident alien sometime during the tax year and both spouses consent.
C)   The taxpayer may revoke an election to exclude foreign- source earned income if a loss is incurred from foreign employment.
D)   All of the above are true.

Question 7

Jacque, a single nonresident alien, is in the United States for 80 days in the current year engaging in the conduct of a U.S. trade or business. Jacque has $30,000 of dividend income paid by a U.S. corporation on a stock investment portfolio unrelated to his trade or business. How will the dividend be taxed and how will the tax be collected?

Accepted Answer

The answer of Jacque, a single nonresident alien, is in...

Question 8

Under the Subpart F rules, controlled foreign corporations (CFCs) are required to distribute a certain portion of their income as dividends to their U.S. shareholders.

Accepted Answer

A) True 
 B)False

Question 9

Identify which of the following statements is true.

Accepted Answer

A)   Nonresident aliens and foreign corporations are not subject to U.S. taxation on their non- U.S. source investment income and part or all of their non- U.S. source trade or business income.
B)   In a particular year, the overall foreign tax credit limitation permits a taxpayer to offset "excess" foreign taxes paid in one country against "excess" limitation amounts originating in other countries.
C)   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.
D)   All of the above are true.

Question 10

In 2017, Phoenix Corporation is a controlled foreign corporation (CFC) incorporated in Country X. It is 100% owned by its U.S. parent corporation. Phoenix has $80,000 of taxable income from the sale of widgets that were purchased from their U.S. parent corporation. All widgets are intended for use or consumption within Country X and have the same gross profit. Sixty percent of the widgets were sold through a Country X wholesaler that is 100% owned by Phoenix, and 40% are sold through unrelated Country X wholesalers. What amount of profits will be constructively distributed as foreign- based company sales income to the U.S. parent company?

Accepted Answer

A)   $0
B)   $48,000
C)   $32,000
D)   $80,000

Question 11

A controlled foreign corporation (CFC) is incorporated in Country B, and is 100% owned by American Manufacturing Corporation. It purchases raw materials from its U.S. parent corporation, manufactures widgets, and sells 70% of the widgets to unrelated purchasers in Country A and 30% to unrelated purchasers in Country B. All widgets will be used in the countries in which they are purchased. The sales produce $100,000 of taxable income. The foreign- based company sales income reportable by American Manufacturing Corporation under the Subpart F rules is

Accepted Answer

A)   $100,000.
B)   $70,000.
C)   $0.
D)   $30,000.

Question 12

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

Accepted Answer

A)   the taxpayer's country of citizenship
B)   the type of income earned
C)   the taxpayer's type of business
D)   the taxpayer's country of residence

Question 13

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 foreign tax credit? Assume he does not qualify for the foreign- earned income exclusion.

Accepted Answer

A)   $20,000
B)   $12,000
C)   $14,318
D)   none of the above

Question 14

Identify which of the following statements is true.

Accepted Answer

A)   When a taxpayer reports excess foreign tax credits in more than one year, the excess credits are used in a last- in- first- out (LIFO)  manner.
B)   Foreign taxes paid in excess of the foreign tax credit limitation can be carried back to the previous three tax years and then carried over to the succeeding five tax years.
C)   Dividends generally are considered to be earned in the distributing corporation's country of incorporation.
D)   All of the above are false.

Question 15

A U.S. citizen, who uses a calendar year as his tax year, is transferred to a foreign country by his employer. The U.S. citizen arrived in the foreign country on November 3 of last year. Residency is expected to be maintained in the foreign country until August 4 of next year. None of the years are a leap year. The first year for which an earned income exclusion can be claimed is

Accepted Answer

A)   next year.
B)   last year.
C)   the current year.
D)   The earned income exclusion cannot be claimed.

Question 16

U.S. citizen who has a calendar tax year establishes a tax home and residence in a foreign country and qualifies for the foreign- earned income exclusion for 60 days in 2016; 365 days in 2017; and 60 days in 2018. The maximum earned income exclusion for 2018 rounded to the nearest whole number is?

Accepted Answer

A)   $16,151
B)   $17,733
C)   $17,113
D)   none of the above

Question 17

Identify which of the following statements is false.

Accepted Answer

A)   A taxpayer who is physically present in a foreign country for 330 full days out of a 12- month period satisfies the bona fide foreign resident test.
B)   The foreign- earned income exclusion is $104,100 in 2018.
C)   The primary purpose for the foreign- earned income exclusion is to prevent double taxation of income.
D)   All of the above are false.

Question 18

Which of the following is an advantage of conducting foreign operations through a branch?

Accepted Answer

A)   Foreign branch income is taxed by both the United States and the host country.
B)   Foreign branch income is taxed at a lower rate than domestic income.
C)   Foreign branch losses can offset domestic income.
D)   The parent's assets are protected from foreign branch creditors.

Question 19

Jacque, a single nonresident alien, is in the United States for 80 days in the current year engaging in the conduct of a U.S. trade or business. Jacque has $3,000 of interest income earned on a bank account in his home country and $1,800 of interest income earned on a bank account located in Addison, Illinois. How will the interest be taxed and how will the tax be collected?

Accepted Answer

The answer of Jacque, a single nonresident alien, is in...

Question 20

Jose, a U.S. citizen, has taxable income from U.S. sources of $15,000 and taxable income from a foreign country of $35,000. Assume the U.S. tax rate is 25% and Jose paid $12,000 in taxes to the foreign country. What foreign tax credit can be claimed by Jose?

Accepted Answer

The answer of Jose, a U.S. citizen, has taxable income...

Exam 16: U.S. Taxation of Foreign-Related Transactions

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.

Perry, a U.S. citizen, is transferred by his employer to Japan for a three- year assignment. Which one of the following items is not excluded under Sec. 911?

Compare the U.S. tax treatment of a nonresident alien and a resident alien, both of whom earn U.S. trade or business and U.S. investment income.

Identify which of the following statements is true.

Under the Subpart F rules, controlled foreign corporations (CFCs) are required to distribute a certain portion of their income as dividends to their U.S. shareholders.

Identify which of the following statements is true.

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

Identify which of the following statements is true.

U.S. citizen who has a calendar tax year establishes a tax home and residence in a foreign country and qualifies for the foreign- earned income exclusion for 60 days in 2016; 365 days in 2017; and 60 days in 2018. The maximum earned income exclusion for 2018 rounded to the nearest whole number is?

Identify which of the following statements is false.

Which of the following is an advantage of conducting foreign operations through a branch?

Jose, a U.S. citizen, has taxable income from U.S. sources of $15,000 and taxable income from a foreign country of $35,000. Assume the U.S. tax rate is 25% and Jose paid $12,000 in taxes to the foreign country. What foreign tax credit can be claimed by Jose?