Question 1

Obispo, Inc., a U.S. corporation, received the following sources of income during 2018:
$20,000 interest income from a loan to its 100 percent owned U.S. subsidiary.
$30,000 dividend income from its 5 percent owned Canadian subsidiary.
$50,000 royalty income from its Irish subsidiary for use of a trademark within the United States.
$40,000 rent income from its Dutch subsidiary for use of a warehouse located in Belgium.
$3,000 capital gain from sale of stock in its 40 percent owned Mexican joint venture. Title passed in the United States.
What amount of foreign source income does Obispo have in 2018?

Accepted Answer

The answer of Obispo, Inc., a U.S. corporation, received the...

Question 2

Ypsi Corporation has a precredit U.S. tax of $420,000 on $2,000,000 of taxable income in 2018. Ypsi has $400,000 of foreign source taxable income characterized as foreign branch income and $150,000 of foreign source taxable income characterized as passive category income. Ypsi paid $100,000 of foreign income taxes on the foreign branch income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its 2018 U.S. tax return and what is the amount of the FTC carryforward, if any?

Accepted Answer

The answer of Ypsi Corporation has a precredit U.S. tax...

Question 3

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.

Accepted Answer

A) True 
 B)False

Question 4

Saginaw Steel Corporation has a precredit U.S. tax of $105,000 on $500,000 of taxable income in 2018. Saginaw has $200,000 of foreign source taxable income and paid $60,000 of income taxes to the German government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Saginaw's foreign tax credit on its 2018 tax return will be:

Accepted Answer

A)  $105,000 
B)  $60,000 
C)  $42,000 
D)  $24,000

Question 5

Jesse Stone is a citizen and bona fide resident of Great Britain. During 2018, Jesse received the following income:
Compensation of $10 million from performing concerts in the United States
Cash dividends of $20,000 from a U.S. corporation
Interest of $1,000 from a U.S. citizen who is a resident of Ireland
Rent of $10,000 from British residents who rented Jesse's townhouse in Orlando, Florida
Gain of $50,000 on the sale of stock in a U.S. corporation
Determine the source (U.S. or foreign) of each item of income Jesse received in 2018.

Accepted Answer

The answer of Jesse Stone is a citizen and bona...

Question 6

Provo Corporation, a U.S. corporation, received a dividend of $350,000 from its 100 percent owned German subsidiary. A withholding tax of $35,000 was imposed on the dividend. What are the U.S. tax consequences to Provo on receipt of the dividend, assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S. operations?

Accepted Answer

A)  Taxable income of $350,000, net U.S. tax liability of $0, and $14,000 FTC carryforward 
B)  Taxable income of $350,000, net U.S. tax liability of $20,000, and $0 FTC carryforward 
C)  Taxable income of $0 and $35,000 FTC carryforward 
D)  Taxable income of $0 and $0 FTC carryforward

Question 7

One of the tax advantages to an individual using a corporation through which to earn income in Germany is deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?

Accepted Answer

A)  Potential exemption of U.S. tax on income earned by the corporation. 
B)  Flow-through of losses from the German corporation to the tax return of the U.S. corporation. 
C)  Limited liability to the U.S. corporation for acts committed by the hybrid entity. 
D)  Free transferability of the stock of the hybrid entity by the U.S. corporation.

Question 9

Ames Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in 2018. Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the U.K. government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Ames's foreign tax credit on its 2018 tax return will be:

Accepted Answer

A)  $210,000 
B)  $126,000 
C)  $120,000 
D)  $72,000

Question 10

U.S. corporations are eligible for a foreign tax credit for withholding taxes imposed on dividends received from 100%-owned foreign corporations.

Accepted Answer

A) True 
 B)False

Question 11

The foreign tax credit regime is the primary mechanism used by the United States government to mitigate or eliminate the potential double taxation of income earned by U.S. individuals outside the United States.

Accepted Answer

A) True 
 B)False

Question 12

Nicole is a citizen and resident of Australia. She has a full-time job in Australia and has lived there with her family for the past 10 years. In 2016, Nicole came to the United States on business and stayed for 180 days. She came to the United States again on business in 2017 and stayed for 150 days. In 2018 she came back to the United States on business and stayed for 100 days. Does Nicole meet the U.S. statutory definition of a resident alien in 2018 under the substantial presence test?

Accepted Answer

The answer of Nicole is a citizen and resident of...

Question 13

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2018. Boca also received a dividend of $100,000 from the corporation's 100 percent owned subsidiary in Italy. The Italian government imposed a withholding tax of $5,000 on the dividend. Compute Boca Corporation's net U.S. tax liability for 2018.

Accepted Answer

A)  $231,000 
B)  $227,000 
C)  $210,000 
D)  $205,000

Question 14

The gross profit from a sale of inventory manufactured in the United States and sold by a U.S. retailer to a customer in Spain will always be treated as 100 percent U.S. source income.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a benefit derived from an income tax treaty between the United States and another country?

Accepted Answer

A)  Lower withholding tax rates imposed on cross border dividend and interest payments. 
B)  A higher threshold for determining when a person has nexus in the other country. 
C)  Lower statutory tax rates imposed on effectively connected income earned by a resident of one country in the other country. 
D)  A higher threshold before an individual is considered a resident of the other country for tax purposes.

Question 16

Which of the following tax benefits does not arise when a U.S. corporation forms a corporation in Ireland through which to earn business profits in Ireland?

Accepted Answer

A)  Potential exemption of U.S. tax on income earned by the corporation. 
B)  Treaty benefits on cross border payments between the Irish corporation and the U.S. corporation. 
C)  Use of transfer pricing to shift income between the United States and Ireland. 
D)  Flow-through of losses from the Irish corporation to the tax return of the U.S. corporation.

Question 17

Amy is a U.S. citizen. During the year she earned income from an investment in a French company. Amy will be subject to U.S. taxation on her income under the principle of source-based taxation.

Accepted Answer

A) True 
 B)False

Question 18

Boomerang Corporation, a New Zealand corporation, is owned by the following unrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and 45 percent by an Australian corporation. During the year, Boomerang earned $3,000,000 of subpart F income. Which of the following statements is True about the application of subpart F to the income earned by Boomerang?

Accepted Answer

A)  Boomerang is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $1,200,000 and $450,000, respectively. 
B)  Boomerang is a CFC and only the U.S. corporation will have a deemed dividend of $1,200,000. 
C)  Boomerang is a CFC and the U.S. corporation, U.S. individual, and Australian corporation will have a deemed dividend of $1,200,000, $450,000, and $1,350,000, respectively. 
D)  Boomerang is not a CFC and none of the shareholders will have a deemed dividend under subpart F.

Question 19

Appleton Corporation, a U.S. corporation, reported total taxable income of $10,000,000 in 2018. Taxable income included $2,500,000 of foreign source taxable income from the company's branch operations in the United Kingdom. All of the branch income is foreign branch income. Appleton paid U.K. income taxes of $500,000 on its branch income. Compute Appleton's net U.S. tax liability and any foreign tax credit carryover for 2018.

Accepted Answer

The answer of Appleton Corporation, a U.S. corporation, reported total...

Question 20

Which of the following income earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?

Accepted Answer

A)  Interest income received from a loan to an unrelated party. 
B)  Dividend income from a five percent investment in an unrelated corporation. 
C)  Rent received from a passive investment in an apartment complex. 
D)  Gross profit from the manufacture and sale of inventory to an unrelated party.

Exam 13: The U.S. Taxation of Multinational Transactions

One of the tax advantages to an individual using a corporation through which to earn income in Germany is deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States.

Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?

U.S. corporations are eligible for a foreign tax credit for withholding taxes imposed on dividends received from 100%-owned foreign corporations.

The foreign tax credit regime is the primary mechanism used by the United States government to mitigate or eliminate the potential double taxation of income earned by U.S. individuals outside the United States.

The gross profit from a sale of inventory manufactured in the United States and sold by a U.S. retailer to a customer in Spain will always be treated as 100 percent U.S. source income.

Which of the following is not a benefit derived from an income tax treaty between the United States and another country?

Which of the following tax benefits does not arise when a U.S. corporation forms a corporation in Ireland through which to earn business profits in Ireland?

Amy is a U.S. citizen. During the year she earned income from an investment in a French company. Amy will be subject to U.S. taxation on her income under the principle of source-based taxation.

Which of the following income earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?