Question 1

A non U.S. citizen with a green card will always be treated as a resident alien for U.S. tax purposes regardless of the number of days she spends in the United States during the current year.

Accepted Answer

A) True 
 B)False

Question 2

Portland Corporation is a U.S. corporation engaged in the manufacture and sale of fishing equipment. The company handles its export sales through sales branches in Canada and Norway. The average tax book value of Portland's assets for the year was $300 million, of which $250 million generated U.S. source income and $50 million generated foreign source income. The average fair market value of Portland's assets was $500 million, of which $400 million generated U.S. source income and $100 million generated foreign source income. Portland's total interest expense for the year was $24 million. What is the minimum amount of interest expense that Portland can apportion against its foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

Accepted Answer

The answer of Portland Corporation is a U.S. corporation engaged...

Question 3

Appleton Corporation, a U.S. corporation, reported total taxable income of $10,000,000 in 2016. 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 general category income. Appleton paid U.K. income taxes of $750,000 on its branch income. Compute Appleton's net U.S. tax liability and any foreign tax credit carryover for 2016. Assume a U.S. corporate tax rate of 34%.

Accepted Answer

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

Question 4

Madrid Corporation is a 100 percent owned Spanish subsidiary of Doubloon Corporation, a U.S. corporation. Madrid had post-1986 earnings and profits of €4,200,000 and post-1986 foreign taxes of $2,700,000. During the current year, Madrid paid a dividend of €2,100,000 to Doubloon. Assume an exchange rate of €1 = $1.50. Compute the tax consequences to Doubloon as a result of this dividend.

Accepted Answer

A)  Taxable income of $3,150,000 and a deemed paid credit of $2,700,000 
B)  Taxable income of $4,500,000 and a deemed paid credit of $2,700,000 
C)  Taxable income of $3,150,000 and a deemed paid credit of $1,350,000 
D) Taxable income of $4,500,000 and a deemed paid credit of $1,350,000

Question 5

Russell Starling, an Australian citizen and resident, received the following investment income during 2016: $5,000 of dividend income from ownership of stock in a U.S. corporation, $10,000 interest from a certificate of deposit in a U.S. bank, $3,000 of interest income earned from a loan to Clint Westwood, a U.S. citizen, and $2,000 capital gain from sale of a stock in a U.S. corporation. How much of Russell's income will be subject to U.S. taxation in 2016?

Accepted Answer

A)  $20,000 
B)  $15,000 
C)  $10,000 
D) $8,000

Question 6

Provo Corporation received a dividend of $350,000 from its 100 percent owned German subsidiary. A deemed paid credit of $150,000 was available on the dividend. No withholding tax 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? Assume a U.S. tax rate of 34 percent.

Accepted Answer

A)  Taxable income of $350,000 and a net U.S. tax liability of $0 
B)  Taxable income of $350,000 and a net U.S. tax liability of $20,000 
C)  Taxable income of $500,000 and a net U.S. tax liability of $170,000 
D) Taxable income of $500,000 and a net U.S. tax liability of $20,000

Question 7

Deductible interest expense incurred by a U.S. corporation will always be treated as a U.S. source deduction.
Interest expense is sourced based on the type of income generated by the corporation's assets, which could be U.S. or foreign.

Accepted Answer

A) True 
 B)False

Question 8

Jimmy Johnson, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. In June 2016, General Motors relocated Jimmy to its operations in Germany for the remainder of 2016. Jimmy was paid a salary of $250,000. As part of his compensation package for moving to Germany, Jimmy received a cost of living allowance of $30,000, which was paid to him only while he worked in Germany. Jimmy's salary was earned ratably over the twelve month period. During 2016 Jimmy worked 260 days, 130 of which were in Germany and 130 of which were in the United States. How much of Jimmy's total compensation is treated as foreign source income for 2016?

Accepted Answer

The answer of Jimmy Johnson, a U.S. citizen, is employed...

Question 9

Which of the following foreign taxes is not a creditable foreign tax for U.S. tax purposes?

Accepted Answer

A)  Income tax paid to the government of Portugal 
B)  Income tax paid to the city of Amsterdam 
C)  Value-added tax paid to the government of France 
D) All of these taxes are creditable

Question 10

Kiwi Corporation is a 100 percent owned Australian subsidiary of Exotic Fruit Corporation, a U.S. corporation. Kiwi had post-1986 earnings and profits of 1,000,000 Australian dollars (AUD) and post-1986 foreign taxes of $225,000. During the current year, Kiwi paid a dividend of 250,000 AUD to Exotic Fruit. Assume an exchange rate of 1 AUD = $0.75. No withholding tax was imposed on the dividend. What amount of taxable income does the dividend generate on Exotic's U.S. tax return?

Accepted Answer

The answer of Kiwi Corporation is a 100 percent owned...

Question 11

Guido was physically present in the United States for 150 days in 2016, 120 days in 2015, and 90 days in 2014. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2016?

Accepted Answer

A)  360 
B)  205 
C)  190 
D) 150

Question 12

Janet Mothra, a U.S. citizen, is employed by Caterpillar Corporation, a U.S. corporation. In May 2016, Caterpillar relocated Janet to its operations in Spain for the remainder of 2016. Janet was paid a salary of $200,000. As part of her compensation package for moving to Spain, Janet received a housing allowance of $40,000. Janet's salary was earned ratably over the twelve month period. During 2016 Janet worked 280 days, 168 of which were in Spain and 112 of which were in the United States. How much of Janet's total compensation is treated as foreign source income for 2016?

Accepted Answer

The answer of Janet Mothra, a U.S. citizen, is employed...

Question 13

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 14

A U.S. corporation can use hybrid entities to avoid the application of subpart F to cross border payments made between wholly-owned entities outside the United States.

Accepted Answer

A) True 
 B)False

Question 15

Wooden Shoe Corporation is a 100 percent owned Dutch subsidiary of Tulip Corporation, a U.S. corporation. Wooden Shoe had post-1986 earnings and profits of €3,000,000 and post-1986 foreign taxes of $1,000,000. During the current year, Wooden Shoe paid a dividend of €300,000 to Tulip. Assume an exchange rate of €1 = $1.40. No withholding tax was imposed on the dividend. What amount of taxable income does the dividend generate on Tulip's U.S. tax return?

Accepted Answer

The answer of Wooden Shoe Corporation is a 100 percent...

Question 16

Which of the following transactions engaged in by a Swiss controlled foreign corporation creates foreign base company sales income?

Accepted Answer

A)  Purchase of inventory from an unrelated person in Germany and sale to a related person in Poland. 
B)  Purchase of inventory from a related person in Germany and sale to an unrelated person in Switzerland. 
C)  Purchase of inventory from a related person in Germany and sale to a related person in Poland. 
D) Purchase of inventory from an unrelated person in Germany and sale to an unrelated person in PolanD.Foreign base company sales income results from the sale or purchase of inventory to (or from) a related person, and the property is manufactured and sold outside the CFC's country of incorporation.

Question 17

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. persons outside the United States.
The U.S. government also mitigates the potential for double taxation through exemptions of income earned outside the United States from U.S. taxation.

Accepted Answer

A) True 
 B)False

Question 18

All taxes paid to a foreign government by a U.S. corporation are creditable on the corporation's U.S. tax return.
Only income taxes are creditable on a U.S. tax return.

Accepted Answer

A) True 
 B)False

Question 19

Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $24,000 of compensation within the United States. She worked 60 days in the United States and 180 days in Brazil. How much of her compensation earned in the United States will be subject to U.S. tax?

Accepted Answer

A)  $24,000 
B)  $8,000 
C)  $6,000 
D) $0

Question 20

Which of the following statements best describes how the deemed paid credit is computed by a U.S. corporation?

Accepted Answer

A)  The foreign subsidiary's post-1986 earnings and profits are kept in functional currency and the post-1986 foreign taxes are kept in U.S. dollars. 
B)  The foreign subsidiary's post-1986 earnings and profits are kept in U.S. dollars and the post-1986 foreign taxes are kept in functional currency. 
C)  The foreign subsidiary's post-1986 earnings and profits and post-1986 foreign taxes are kept in functional currency. 
D) The foreign subsidiary's post-1986 earnings and profits and post-1986 foreign taxes are kept in U.S. dollars.

Exam 13: The US Taxation of Multinational Transactions

A non U.S. citizen with a green card will always be treated as a resident alien for U.S. tax purposes regardless of the number of days she spends in the United States during the current year.

Deductible interest expense incurred by a U.S. corporation will always be treated as a U.S. source deduction. Interest expense is sourced based on the type of income generated by the corporation's assets, which could be U.S. or foreign.

Which of the following foreign taxes is not a creditable foreign tax for U.S. tax purposes?

Guido was physically present in the United States for 150 days in 2016, 120 days in 2015, and 90 days in 2014. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2016?

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

A U.S. corporation can use hybrid entities to avoid the application of subpart F to cross border payments made between wholly-owned entities outside the United States.

Which of the following transactions engaged in by a Swiss controlled foreign corporation creates foreign base company sales income?

All taxes paid to a foreign government by a U.S. corporation are creditable on the corporation's U.S. tax return. Only income taxes are creditable on a U.S. tax return.

Which of the following statements best describes how the deemed paid credit is computed by a U.S. corporation?