Deck 16: Ustaxation of Foreign-Related Transactions

Question 1

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

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

Answer 1

C

Question 2

Excess foreign taxes in one basket cannot offset limitation amounts in another basket.

Answer 2

True

Question 3

Identify which of the following statements is true.

A)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.
B)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.
C)When computing the foreign tax credit limitation,taxable income for individual taxpayers is computed without a personal exemption deduction.
D)All of the above are false.

Answer 3

C

Question 4

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.

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

Question 5

Excess foreign tax credits can be carried back one year and forward five years.

Question 6

Identify which of the following statements is false.

A)An accrual-basis taxpayer must make an adjustment to their foreign tax credit which reflects the change in exchange rates between the accrual date and the payment date.
B)Dividend income received by a U.S.individual from a foreign corporation earning nearly all of its income from outside the United States is foreign-source income.
C)Income from the sale of personal property (other than inventory)by a U.S.resident is considered earned in the country where the personal property is delivered.
D)Itemized deductions are allocated between U.S.and foreign-source income.

Question 7

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.

Question 8

For the foreign credit limitation calculation,income derived from the sale of inventory which is produced by the seller,is considered earned

A)where production occurs.
B)where the sale occurs.
C)where the seller is a resident.
D)partially where produced and partially where sold.

Question 9

U.S.citizens and resident aliens working abroad may qualify for the foreign-earned income exclusion of $101,300 in 2016.

Question 10

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.

A)$0
B)$2,000
C)$4,000
D)none of the above

Question 11

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.

Question 12

Identify which of the following statements is true.

A)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.
B)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.
C)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.
D)All of the above are true.

Question 13

If foreign taxes on foreign income exceed U.S.taxes on foreign income,the excess foreign taxes are credited against U.S.taxes in the current year.

Question 14

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 25%.The tax on Country A income is $8,000,and Country B charges no tax on the interest income.Assuming two baskets are needed for the two types of income because the interest is passive income,Karen's foreign tax credit that can be claimed is

A)$5,000.
B)$10,000.
C)$20,000.
D)none of the above

Question 15

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 taxes on her worldwide income are $20,000.What is Ashley's foreign tax credit? Assume she does not qualify for the foreign-earned income exclusion.

A)$8,000
B)$10,000
C)$12,000
D)none of the above

Question 16

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)$50,000.
B)$75,000.
C)$100,000.
D)none of the above

Question 17

What are the carryback and carryforward periods for the foreign tax credit?

A)back two years; forward five years
B)back three years; forward ten years
C)back one year; forward ten years
D)back two years; forward twenty years

Question 18

A U.S.citizen accrued $120,000 of creditable foreign taxes last year.The citizen's foreign tax credit limitation for last year is $90,000 (only a single limitation need be calculated).The excess foreign tax credit limitation for the year preceding the year in which the excess foreign taxes were incurred is $2,000.A similar $2,000 excess foreign tax credit limitation position is expected in each of the next 10 years.What portion of the excess foreign taxes can be expected to be noncreditable because of the foreign tax credit limitation?

A)$0
B)$2,000
C)$8,000
D)none of the above

Question 19

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.

A)$0
B)$5,682
C)$8,000
D)none of the above

Question 20

Income derived from the sale of merchandise inventory (i.e. ,final goods purchased for resale)are sourced in the country where the sale occurs.

Question 21

Identify which of the following statements is true.

A)Capital gains earned in the United States,other than in the conduct of a U.S.trade or business,are taxed to a nonresident alien only if the alien is physically present in the United States for at least 183 days during the tax year.
B)Aliens,who are U.S.residents,are taxed only on their U.S.income.
C)A nonresident alien from a nontreaty country is taxed at a 35% rate on U.S.source investment income without the benefit of any deductions.
D)All of the above are true.

Question 22

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 2010; 365 days in 2011; and 60 days this year,2012.The maximum earned income exclusion for this year is?

A)$13,733
B)$16,044
C)$13,151
D)none of the above

Question 23

The physical presence test method of qualifying for the foreign-earned income exclusion requires the

A)presence in one foreign country for at least 330 full days during a 12-month period.
B)presence in one or more foreign countries for at least 330 full days during a single tax year.
C)presence in one or more foreign countries for at least 330 full days during a 12-month period.
D)presence in one or more foreign countries for at least 330 consecutive full days during a 12-month period.

Question 24

Identify which of the following statements is true.

A)An individual who is physically present in a foreign country for 330 full days out of a 12-month period can claim the foreign-earned income exclusion only for the days in the 12-month period he/she is physically present in a foreign country.
B)An individual,who is a bona fide resident of a foreign country for at least one full tax year,can claim the foreign-earned income exclusion for all days on which he/she is a resident of the foreign country and physically present in that country.
C)Fringe benefits that are excluded from gross income under a Code Section other than Sec.911 reduce the annual dollar ceiling for the foreign income exclusion.
D)All of the above are false.

Question 25

Identify which of the following statements is false.

A)Earned income is excludable from gross income only if it is foreign-source income.
B)Taxable pensions and annuities are excluded from the definition of earned income when computing the foreign-earned income exclusion.
C)An individual meets the bona fide resident test by establishing a home in a foreign country for 330 days.
D)All of the above are false.

Question 26

Identify which of the following statements is true.

A)If a foreign national has a closer connection with his home country,the individual is taxed as a resident alien.
B)To obtain resident status,an alien must meet both the lawful permanent resident test and the substantial presence test.
C)An individual who is a resident alien of the United States is taxed on his or her worldwide income at the same tax rates that would apply to a U.S.citizen.
D)All of the above are false.

Question 27

A nonresident alien earns $10,000 of dividends from a domestic corporation,which is the alien's only U.S.source income.Which one of the following statements is incorrect?

A)The nonresident alien's U.S.tax rate is 30% unless reduced by a tax treaty.
B)The domestic corporation must withhold the U.S.taxes from the alien's dividend payment.
C)The 30% tax rate is applied against gross income.
D)The nonresident alien must pay estimated taxes on the dividend income at a 30% rate.

Question 28

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

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

Question 29

Michael,a U.S.citizen,earned $100,000 of foreign-earned income and no other U.S.or foreign income in 2013.He also incurred $10,000 of employment-related expenses,none of which were reimbursed.If the full foreign-earned income exclusion is utilized,calculate the deductible employment-related expense (before the 2% nondeductible floor).

Question 30

Darlene,a U.S.citizen,has foreign-earned income of $150,000 and employment-related expenses of $15,000.Darlene earns no other income.Darlene also has $12,000 of itemized deductions not directly related to the foreign-earned income.She can exclude $97,600 of foreign-earned income.Darlene incurs $33,750 of Country C income taxes on $150,000 of Country C taxable income.How much of Darlene's foreign income taxes are noncreditable?

Question 31

U.S.citizen Patrick is a bona fide resident of a foreign country for all of the current year.Patrick uses a calendar year as his tax year.He has $100,000 of self-employment income and incurs $20,000 in housing expenses.The base housing cost amount is $15,616.The deduction for housing expenses is

A)$13,184 for AGI.
B)$13,184 from AGI.
C)$4,384 for AGI.
D)$6,816 from AGI.

Question 32

Pedro,a nonresident alien,licenses a patent to a U.S.company for an $11 per unit fee for each unit produced.As a result of receiving the fee,Pedro must recognize the fee as

A)ordinary income taxable in the United States.
B)capital gain taxable in the United States.
C)no gain or income taxed in the United States.
D)a portion of the gain,depending on the number of days Pedro is physically present in the United States during the current year.

Question 33

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?

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

Question 34

Nonresident aliens are not allowed to claim the standard deduction.

Question 35

Marcella,an alien individual,is present in the United States for 122 days this year and 122 days each in the past two years.Does she satisfy both the 31-day and 183-day requirements for U.S.Residency status?

Question 36

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?

Question 37

U.S.citizen Barry is a bona fide resident of a foreign country for all of 2013.Barry uses a calendar year as his tax year and receives $158,000 in salary and allowances from his employer.Included in the $158,000 is a $25,000 housing allowance.Barry's housing costs are $30,000.The base housing amount for the current year is $15,616.What amount related to his housing can Barry exclude on his Form 2555?

A)$14,384
B)$25,000
C)$30,000
D)$13,545

Question 38

Identify which of the following statements is false.

A)The foreign-earned income exclusion is $91,400 in 2009.
B)The primary purpose for the foreign-earned income exclusion is to prevent double taxation of income.
C)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.
D)All of the above are false.

Question 39

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 25%.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

A)$5,000.
B)$8,000.
C)$10,000.
D)none of the above

Question 40

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?

Question 41

Income is "effectively connected" with the conduct of a U.S.business only if

A)the asset-use test is met.
B)the business activities test is met.
C)activities of the U.S.business are a material factor in the realization of the income.
D)Either A,B,or C can be correct.

Question 42

U.S.Corporation owns 45% of the stock of Foreign Corporation.Foreign Corporation is incorporated in Country T.In its first year of operations,Foreign Corporation earns 100,000 frugs of E&P,pays a 20,000- frug dividend to U.S.Corporation,and pays 5,000 frugs in income taxes.The exchange rate between the dollar and the frug is: first year average,1 frug = $0.20; yearend,1 frug = $0.25); tax payment date,1 frug = $0.30; and dividend payment date,1 frug = $0.28.What is the translated foreign tax amount attributable to the dividend for deemed paid foreign tax credit purposes?

A)$200.00
B)$250.00
C)$300.00
D)$280.00

Question 43

A U.S.corporation can claim a credit for foreign taxes withheld from dividends paid by a foreign corporation in which it owns at least 10% of the stock.

Question 44

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 a $15,000 capital gain on the sale of stock in a U.S.corporation while he was in the United States.The capital gain is not connected to his trade or business.How will the capital gain be taxed and how will the tax be collected?

Question 45

Define the term "nonresident alien" and discuss the special tax consequences of U.S.taxation on various types of income of a nonresident alien.

Question 46

U.S.Corporation owns 45% of the stock of Foreign Corporation.Foreign Corporation is incorporated in Country T.In its first year of operations,Foreign Corporation earns 60,000 frugs of E&P,pays a 40,000- frug dividend,and pays 5,000 frugs in income taxes.The exchange rate between the dollar and the frug is: first year average,1 frug = $0.20; yearend,1 frug = $0.25; tax payment date,1 frug = $0.30; and dividend payment date,1 frug = $0.28.What is the translated dividend amount?

A)$5,400
B)$4,500
C)$5,040
D)$3,600

Question 47

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.

Question 48

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.

Question 49

Identify which of the following statements is false.

A)A nonresident alien can elect to have income earned on a passive real estate investment treated as trade or business income.
B)Nonresident aliens may use either the standard deduction or claim itemized deductions.
C)Nonresident aliens are generally allowed to claim only a single personal exemption.
D)All of the above are false.

Question 50

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.

Question 51

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 $75,000 of sales income earned while in the United States and $30,000 of non-U.S.sales income earned while he was outside the United States.How will the income be taxed and how will the tax be collected?

Question 52

Identify which of the following statements is true.

A)The losses of a foreign corporation that is 100% owned by a domestic corporation can be deducted by the domestic corporation to offset its gross income in the year incurred.
B)The deemed paid foreign tax credit was enacted so as not to discourage foreign direct investment through foreign branches.
C)A dividend remittance made by a noncontrolled foreign corporation is translated into U.S.dollars at the current exchange rate for the date the dividend is paid.
D)All of the above are false.

Question 53

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?

Question 54

Cane Corporation owns 45% of the stock of Edmonton Airline Corporation.In its first year of operations,Edmonton Airline,a Canadian corporation,earns $400,000 of E&P and pays a $100,000 dividend to Cane Corporation.Edmonton Airline pays $50,000 in Canadian income taxes.All amounts are expressed in U.S.dollars.What is Cane Corporation's deemed paid foreign tax credit for the dividend?

A)$ 0
B)$12,500
C)$50,000
D)none of the above

Question 55

U)S.Corporation owns 45% of the stock of Foreign Corporation.Foreign Corporation is incorporated in France.During the current year,Foreign Corporation reports $100,000 of E&P,pays $30,000 in foreign income taxes,and remits $40,000 of dividends ratably to its shareholders.In prior post-1986 tax years,Foreign Corporation reported $60,000 of E&P,paid foreign income taxes of $20,000,and paid no dividends.What is U.S.Corporation's deemed paid foreign tax credit for the current-year dividend?

A)$5,000
B)$5,625
C)$18,000
D)$22,000

Question 56

Overseas business activities conducted by U.S.corporations receive which one of the following favorable tax breaks?

A)Foreign subsidiaries of U.S.corporations are exempt from the U.S.corporate income tax unless they earn U.S.-source investment or trade or business income.
B)Foreign subsidiaries of U.S.corporations are always exempt from the U.S.corporate income tax even if they earn U.S.-source investment or trade or business income.
C)Domestic corporations conducting business in a foreign country through a branch office or facility can exempt non-U.S.income from the U.S.corporate income tax.
D)All of the above are correct.

Question 57

U)S.Corporation,a domestic corporation,owns all of Foreign Corporation's stock.Foreign Corporation is incorporated in France.This year,Foreign Corporation reports $100,000 in aftertax profits in France,none of which is Subpart F income.U.S.Corporation

A)must include the $100,000 profit in its current-year U.S.tax return.
B)never has to include Foreign Corporation's profits in its U.S.tax return.
C)reports Foreign Corporation's profits in its U.S.tax return in the same manner it would if Foreign Corporation were instead a foreign branch.
D)must include Foreign Corporation's profits in its U.S.tax return when they are paid to U.S.Corporation in the form of a dividend.

Question 58

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?

Question 59

U)S.Corporation,a domestic corporation,owns all of Foreign Corporation's stock.Foreign Corporation is incorporated in France.This year,Foreign Corporation suffers a $100,000 net operating loss (NOL)in France.What amount of the $100,000 NOL can U.S.Corporation use to reduce its current-year U.S.taxable income?

A)$100,000
B)$50,000
C)$0
D)none of the above

Question 60

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

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

Question 61

Domestic corporation X owns all the stock of controlled foreign corporation (CFC)T.X's acquisition cost for the CFC investment is $150,000.The CFC reports E&P of $200,000 since the domestic corporation acquired its interest,of which $120,000 was Subpart F income.The CFC makes a cash distribution of $90,000 to the domestic corporation.What is the domestic corporation's basis for its investment in T immediately after the cash distribution?

A)$150,000
B)$180,000
C)$230,000
D)none of the above

Question 62

Which of the following statements is incorrect?

A)A domestic subsidiary's earnings are taxed in the year earned.
B)A foreign corporation's (less than 50% ownership)are not taxed until repatriated.
C)All of a controlled foreign corporation's earnings are taxed as earned.
D)U)S.taxpayers with a foreign branch can reduce part or all of their U.S.taxes by the foreign tax credit.

Question 63

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?

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

Question 64

Identify which of the following statements is true.

A)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.
B)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.
C)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.
D)All of the above are true.

Question 65

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 have the same gross profit.Sixty percent of the widgets were sold through a Country Y wholesaler that is 100% owned by Phoenix,and are destined for use in Country Y.The remaining 40% are sold through unrelated Country X wholesalers and are destined for use in Country X.What amount of profits will be constructively distributed as foreign-based company sales income to the U.S.parent company?

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

Question 66

Zeta Corporation,incorporated in Country Z,is 100% owned by Zelda Corporation,a U.S.corporation.Zelda purchases some machines from an unrelated corporation,for use in Country A.The portion of the sales contract covering installation and maintenance of the machines is assigned by Zelda to Zeta.Zeta is to be paid for these services by Zelda.Does this qualify as foreign base company services income?

Question 67

A foreign corporation with a single class of stock is owned equally by Jericho Corporation,a U.S.corporation,and Joshua,a nonresident alien.Joshua owns no Alpha Corporation stock.Is the foreign corporation a controlled foreign corporation (CFC)?

Question 68

What are the consequences of classification as a corporate inversion?

A)The foreign corporation will be treated as if it is a U.S.corporation.
B)Foreign tax credits will be disallowed on all future earnings.
C)The corporation will be subject to a flat 35% tax rate.
D)If more than half of the shareholders of the new company are the same as the former company,the corporation is considered a U.S.corporation.

Question 69

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

A)A foreign corporation acquires substantially all of the assets of a U.S.corporation.
B)Former shareholders of the U.S.corporation own 80% or more of the stock in the foreign corporation by reason of their U.S.stock ownership.
C)The former U.S.company and its affiliates do not conduct substantial business in the foreign country of incorporation.
D)All of the above are required.

Question 70

Which of the following statements regarding inversions is incorrect?

A)The objective of an inversion is to avoid U.S.tax on worldwide income.
B)In an inversion,a U.S.corporation reorganizes as a foreign corporation.
C)The IRS will disregard the inversion if the former shareholders of the U.S.corporation continue to own 60% of the foreign corporation's stock.
D)The IRS will examine whether the foreign corporation conducts substantial business in the foreign country of incorporation to determine if the inversion is valid.

Question 71

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)?

Question 72

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

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

Question 73

A foreign corporation is owned by five unrelated individuals.John,Sam,and David are U.S.citizens who own 30%,18% and 9%,respectively,of the foreign corporation's single class of stock.Alberto and Manuel are nonresident aliens who own 37% and 6%,respectively,of the foreign corporation's stock.Which of the following statements is true?

A)There are three "U.S.shareholders" and the foreign corporation is a controlled foreign corporation (CFC).
B)There are three "U.S.shareholders" and the foreign corporation is not a controlled foreign corporation (CFC).
C)There are two "U.S.shareholders" and the foreign corporation is not a controlled foreign corporation (CFC).
D)There are two "U.S.shareholders" and the foreign corporation is a controlled foreign corporation (CFC).

Question 74

A foreign corporation with a single class of stock is owned equally by Jericho Corporation,a U.S.corporation,and Joshua,a U.S.citizen.Joshua owns no Alpha Corporation stock.Is the foreign corporation a controlled foreign corporation (CFC)?

Question 75

Identify which of the following statements is true.

A)Foreign-based company sales income is earned when personal property is purchased by a Country X controlled foreign corporation (CFC)from its U.S.parent corporation and is sold to unrelated persons in Country Z.
B)Section 482 permits the IRS to restructure transactions between related parties as if the transactions were conducted at arm's length.
C)One tax avoidance practice which Sec.482 attempts to prevent is the transfer of tangible property to a foreign subsidiary at a price which is below the arm's-length price that would be used by unrelated parties.
D)All of the above are true.

Question 76

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.The shareholders are not related.Is the foreign corporation a controlled foreign corporation (CFC)?

Question 77

Identify which of the following statements is true.

A)When a controlled foreign corporation (CFC)uses Subpart F income to invest in U.S.property,the investments are characterized as constructive distributions.
B)A controlled foreign corporation (CFC)can avoid the constructive dividend distribution resulting from investments in U.S.property if it invests in U.S.government obligations.
C)Distributions made by a controlled foreign corporation (CFC)are deemed to be paid first from tax-deferred earnings.
D)All of the above are false.

Question 78

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?

Question 79

Identify which of the following statements is true.

A)The foreign income taxes withheld from a dividend remittance made by a foreign corporation are translated into U.S.dollars at the current exchange rate in effect for the date the dividend is paid.
B)A U.S.subsidiary that is used by a foreign parent corporation to conduct its U.S.business activities is required to withhold 30% of dividends paid to the foreign corporation unless a treaty provides for a lower withholding rate.
C)A foreign corporation that conducts a U.S.trade or business may be required to pay the corporate income tax,the corporate alternative minimum tax,and the branch profits in a single year.
D)All of the above are false.

Question 80

Cane Corporation owns 45% of the stock of Edmonton Airline Corporation.In its first year of operations,Edmonton Airline,a Canadian corporation,reports $400,000 of E&P and pays a $100,000 dividend to Cane Corporation.Edmonton Airline pays $50,000 in Canadian income taxes.All amounts are expressed in U.S.dollars.What is Cane Corporation's U.S.tax liability as a result of receiving the dividend? (Assume a 34% U.S.corporate tax rate. )