Deck 13: The US Taxation of Multinational Transactions

Question 1

Once a U.S. corporation chooses a method to allocate interest expense, either fair market value or tax book value, that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.
A taxpayer can switch from the tax book value method to the fair market value method without permission of the commissioner of the Internal Revenue Service.

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S. individual. The withholding tax will be creditable on the individual's U.S. tax return as an "in lieu of" tax.
Because Canada imposes an income tax, the withholding tax is creditable as an "in lieu of" tax.

Answer 3

True

Question 4

Alex, a U.S. citizen, became a resident of Belgium in 2016. Alex will no longer be subject to U.S. taxation on income he earns in Belgium if such income is exempted from tax under the U.S. - Belgium treaty.
The United States taxes its citizens on a worldwide basis. Alex will continue to be subject to U.S. tax on income he earns in Belgium.

Question 5

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.

Question 6

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.

Question 7

Philippe is a French citizen. During 2016 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2016, he will not be treated as a resident alien for U.S. tax purposes.
The substantial presence test is calculated using a formula that takes into account days physically present in the United States in the current and immediately prior two years.

Question 8

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.

Question 9

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.
Under the Code, compensation earned in the United States is U.S. source income and subject to tax if the individual was in the United States for more than 90 days and the compensation exceeds $3,000. If Cecilia were a resident of a country with which the United States has a treaty, she could be exempt from U.S. taxation under a treaty provision that allows her to work in the United States for more than 90 days during the year.

Question 10

Marcel, a U.S. citizen, receives interest income from bonds issued by a Dutch corporation. The interest income will be considered U.S. source income for U.S. tax purposes.
The interest is sourced based on the residence of the corporation paying the interest.

Question 11

A hybrid entity established in Ireland is treated as a flow-through entity for U.S. tax purposes and a corporation for Irish tax purposes.

Question 12

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary. For foreign tax credit purposes, the dividend will always be characterized as passive category income.
Under the look-through rules, the dividend will be characterized based on the type of income from which it was paid.

Question 13

"Outbound taxation" deals with the U.S. tax rules that apply to U.S. persons doing business outside the United States.

Question 14

The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S. source income.
Under §863(b), special apportionment rules apply. Under the 50/50 method, which is one of three elective methods of apportioning gross income, 50 percent of the gross profit will be treated as foreign source income if title passes outside the United States.

Question 15

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

Question 16

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.
Amy is subject to U.S. taxation under residence-based taxation.

Question 17

Under most U.S. treaties, a resident of the other country must have a permanent establishment in the United States before being subject to U.S. taxation on business profits earned within the United States.

Question 18

The United States generally taxes U.S. source fixed and determinable, annual or periodic income (FDAP) earned by non-U.S. persons by applying a withholding tax to the gross amount of income.

Question 19

One of the tax advantages to 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.

Question 20

U.S. individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations.
Only corporations owning 10 percent or more of a foreign corporation are eligible for the deemed paid credit.

Question 21

Under which of the following scenarios could Charles, a citizen of England, be eligible to claim the "closer connection" exception to the substantial presence test in 2016?

A) Charles spent 183 days in the United States in 2016 and has his tax home in England.
B) Charles spent 183 days in the United States in 2016 and has his tax home in the United States.
C) Charles spent 182 days in the United States in 2016 and has his tax home in England.
D)Charles spent 182 days in the United States in 2016 and has his tax home in the United States.

Question 22

To be eligible for the "closer connection" exception to the physical presence test, an individual must be in the United States for less than how many days?

A) 31
B) 61
C) 181
D)183

Question 23

All income earned by a Swiss corporation owned by a U.S. corporation is deferred from U.S. taxation until such income is remitted back to the United States.
Income that is characterized as subpart F income could be treated as a deemed dividend back to the United States in the year earned by the foreign corporation.

Question 24

A Japanese corporation owned by eleven U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.
For a corporation to be a CFC, it must be owned more than 50 percent by U.S. persons owning at least 10 percent of the corporation. One of the individuals could own more than 50 percent of the stock, making the corporation a CFC.

Question 25

Ames Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2016. Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the Australian government on this income. All of the foreign source income is treated as general category income for foreign tax credit purposes. Ames's foreign tax credit on its 2016 tax return will be:

A) $72,000
B) $120,000
C) $204,000
D)$340,000

Question 26

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?

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

Question 27

Which of the following statements best describes the substantial presence test as it applies to determining if a non U.S. citizen is a resident alien for U.S. tax purposes?

A) To be treated as a resident alien, an individual must be physically present in the United States for 183 days in the current year.
B) To be treated as a resident alien, an individual must be physically present in the United States for 183 days in the current year and each of the prior two years.
C) To be treated as a resident alien, an individual must be physically present in the United States for 183 days using a formula that includes the current year and the prior two years.
D)To be treated as a resident alien, an individual must be physically present in the United States for 183 days using a formula that includes the current year and the prior year.

Question 28

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.

Question 29

Gwendolyn was physically present in the United States for 90 days in 2016, 180 days in 2015, and 30 days in 2014. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2016?

A) 300
B) 155
C) 150
D)90

Question 30

Which statement best describes the U.S. framework for taxing multinational transactions?

A) The U.S. government applies source-based taxation to income earned by U.S. and non-U.S. persons.
B) The U.S. government applies residence-based taxation to income earned by U.S. and non-U.S. persons.
C) The U.S. government applies residence-based taxation to income earned by U.S. persons and source-based taxation to income earned by non-U.S. persons.
D)The U.S. government applies source-based taxation to income earned by U.S. persons and residence-based taxation to income earned by non-U.S. persons.

Question 31

Which statement best describes the U.S. framework for determining if an individual who is not a U.S. citizen will be treated as a resident alien for U.S. tax purposes?

A) A person must have a green card and meet a substantial presence test to be treated as a resident alien for U.S. tax purposes.
B) A person must have a green card to be treated as a resident alien for U.S. tax purposes.
C) A person must meet a substantial presence test to be treated as a resident alien for U.S. tax purposes.
D)A person with a green card will always be treated as a resident alien for U.S. tax purposes, while a person without a green card may be treated as a resident alien if she meets a substantial presence test.

Question 32

Austin Corporation, a U.S. corporation, received the following investment income during 2016: $50,000 of dividend income from ownership of stock in a French corporation, $20,000 interest on a loan to its Dutch subsidiary, $40,000 royalty from its 50-percent owned Irish venture, and $30,000 capital gain from sale of its stock in a Brazilian corporation. How much foreign source income does Austin have in 2016?

A) $140,000
B) $110,000
C) $70,000
D)$60,000

Question 33

Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?

A) Income that is characterized as effectively connected income is subject to net taxation while income that is characterized as fixed and determinable, annual or periodic income is subject to a withholding tax applied to gross income.
B) Income that is characterized as effectively connected income is subject to a withholding tax applied to gross income while income that is characterized as fixed and determinable, annual or periodic income is subject to net taxation.
C) All U.S. source income is subject to net taxation, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.
D)All U.S. source income is subject to a withholding tax applied to gross income, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.

Question 34

Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from the sale of the inventory was $300,000. Title to the inventory passed FOB: destination. Under the 50/50 method, how much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

A) $300,000
B) $150,000
C) $0
D)The answer cannot be determined with the information provideD.Under §863(b), 50 percent of the gross income is sourced based on where the assets producing the inventory are located and 50 percent is sourced based on title passage. Because title passes outside the United States and the assets are located in the United States, 50 percent of the gross profit is treated as U.S. source income for FTC purposes.

Question 35

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?

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

Question 36

All passive income earned by a CFC will be treated as foreign personal holding company income under subpart F for U.S. tax purposes.
Same country interest payments between related CFCs and rents and royalties derived in the active conduct of a trade or business are excluded from the definition of foreign personal holding company income under subpart F.

Question 37

Flint Steel Corporation has a precredit U.S. tax of $170,000 on $500,000 of taxable income in 2016. Flint has $200,000 of foreign source taxable income and paid $80,000 of income taxes to the German government on this income. All of the foreign source income is treated as general category income for foreign tax credit purposes. Flint's foreign tax credit on its 2016 tax return will be:

A) $102,000
B) $80,000
C) $68,000
D)$32,000

Question 38

Santa Fe Corporation manufactured inventory in the United States and sold the inventory to customers in Mexico. Gross profit from the sale of the inventory was $200,000. Title to the inventory passed FOB: shipping point. Under the 50/50 method, how much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

A) $200,000
B) $100,000
C) $0
D)The answer cannot be determined with the information provideD.Under §863(b), 50 percent of the gross income is sourced based on where the assets producing the inventory are located and 50 percent is sourced based on title passage. Because title passes in the United States and the assets are located in the United States, 100 percent of the gross profit is treated as U.S. source income for FTC purposes.

Question 39

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?

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

Question 40

Subpart F income earned by a CFC will always be treated as a deemed dividend to the CFC's U.S. shareholders in the year the subpart F income is earned.
The subpart F income could be excluded from being a deemed dividend under a de minimis rule if the gross amount of the income is less than the lesser of $1 million or five percent of gross income.

Question 41

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

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 42

Knoxville Corporation, a U.S. corporation, incurred $300,000 of research and experimental (R&E) expenses during 2016. Knoxville sells inventory within the United States and abroad. Knoxville conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $10,000,000, of which $3,000,000 was from foreign source sales. Gross profit from sale of the inventory was $5,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

A) $120,000
B) $90,000
C) $45,000
D)$0

Question 43

A U.S. corporation reports its foreign tax credit computation on which tax form?

A) Form 1116
B) Form 1118
C) Form 1120
D)Form 8832

Question 44

Pierre Corporation has a precredit U.S. tax of $510,000 on $1,500,000 of taxable income in 2016. Pierre has $300,000 of foreign source taxable income characterized as general category income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $90,000 of foreign income taxes on the general category income and $15,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Pierre use on its 2016 U.S. tax return and what is the amount of the carryforward, if any?

A) $153,000 FTC with $0 carryforward
B) $105,000 FTC with $0 carryforward
C) $105,000 FTC with $48,000 carryforward
D)$117,000 FTC with $0 carryforward

Question 45

Absent a treaty provision, what is the statutory withholding tax rate imposed by the United States on a dividend paid by a U.S. corporation to a resident of Denmark?

A) 30%
B) 15%
C) 5%
D)0%

Question 46

Manchester Corporation, a U.S. corporation, incurred $100,000 of interest expense during 2016. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its U.S. production assets is $20,000,000 and $50,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $10,000,000, respectively. What is the minimum amount of interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

A) $0
B) $20,000
C) $25,000
D)$100,000

Question 47

Hanover Corporation, a U.S. corporation, incurred $300,000 of interest expense during 2016. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its production assets is $20,000,000 and $60,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $20,000,000, respectively. What is the minimum amount of interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

A) $300,000
B) $100,000
C) $75,000
D)$60,000

Question 48

Which of the following expenses incurred by a U.S. corporation is not subject to special apportionment rules for foreign tax credit purposes?

A) Interest
B) Research and experimental
C) Advertising
D)State and local income taxes

Question 49

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. Horton had post-1986 earnings and profits of C$2,400,000 and post-1986 foreign taxes of $1,600,000. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. taxable income of $2,000,000. Cruller's U.S. tax rate is 34 percent. Compute the tax consequences to Cruller as a result of this dividend.

A) Taxable income of $3,000,000, a net U.S. tax of $590,000, and a FTC carryover of $0
B) Taxable income of $3,000,000, a net U.S. tax of $680,000, and a FTC carryover of $90,000
C) Taxable income of $2,600,000, a net U.S. tax of $680,000, and a FTC carryover of $226,000
D)Taxable income of $2,600,000, a net U.S. tax of $454,000, and a FTC carryover of $0

Question 50

Under a U.S. treaty, what must a non-resident corporation create in the United States before it is subject to U.S. taxation on its business profits?

A) U.S. trade or business
B) Permanent establishment
C) The physical presence of at least one employee
D)The physical presence of an asset such as a warehouse

Question 51

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.

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 52

Camellia Corporation, a U.S. corporation, incurred $600,000 of research and experimental (R&E) expenses during 2016. Camellia sells inventory within the United States and abroad. Camellia conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $20,000,000, of which $12,000,000 was from foreign source sales. Gross profit from sale of the inventory was $8,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

A) $360,000
B) $180,000
C) $150,000
D)$112,500

Question 53

A deemed paid credit is available on which of the following dividends received by a U.S. corporation?

A) Dividend received from a 5 percent owned foreign corporation, all of the income of which is derived from an active business.
B) Dividend received from a 20 percent owned foreign corporation, all of the income of which is derived from an active business.
C) Dividend received from a 100 percent owned foreign corporation, all of the income of which is derived from an active business.
D)Dividend received from a 20 percent owned foreign corporation, all of the income of which is derived from an active business, and Dividend received from a 100 percent owned foreign corporation, all of the income of which is derived from an active business are correct answers.

Question 54

Which of the following tax rules applies to an excess foreign tax credit (FTC) that arises in 2016?

A) The excess FTC is first carried back to 2015 and any excess is carried forward for 10 years.
B) The excess FTC is first carried back to 2014, then 2015, and any excess is carried forward for 20 years.
C) The excess FTC is first carried back to 2013, then 2014, then 2015, and any excess is carried forward for 5 years.
D)The excess FTC is carried forward 10 years, with no carryback alloweD.The one year carryback is mandatory.

Question 55

Bismarck Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2016. Bismarck has $200,000 of foreign source taxable income characterized as general category income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the general category income and $10,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Bismarck use on its 2016 U.S. tax return and what is the amount of the carryforward, if any?

A) $90,000 FTC with $0 carryforward
B) $85,000 FTC with $5,000 carryforward
C) $78,000 FTC with $12,000 carryforward
D)$78,000 FTC with $5,000 carryforward

Question 56

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.

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 57

Silverado Corporation is a 100 percent owned Mexican subsidiary of Gold Nugget Corporation, a U.S. corporation. Silverado had post-1986 earnings and profits of 350,000,000 pesos and post-1986 foreign taxes of $15,000,000. During the current year, Silverado paid a dividend of 70,000,000 pesos to Gold Nugget. Assume an exchange rate of 1 peso = 0.10 dollars. Compute the tax consequences to Gold Nugget as a result of this dividend.

A) Taxable income of $7,000,000 and a deemed paid credit of $3,000,000
B) Taxable income of $10,000,000 and a deemed paid credit of 3,000,000
C) Taxable income of $7,000,000 and a deemed paid credit of $1,500,000
D)Taxable income of $10,000,000 and a deemed paid credit of $1,500,000

Question 58

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

A) Direct taxes paid by a U.S. corporation on income earned in a foreign branch
B) Deemed paid taxes on a dividend received by a U.S. corporation from its 100 percent owned foreign subsidiary
C) Withholding taxes imposed on a dividend received by a U.S. corporation from its 100 percent owned foreign subsidiary
D)All of these taxes are creditable

Question 59

Which of the following items of foreign source income is classified as passive category income for foreign tax credit purposes?

A) Dividend received from a 5 percent owned foreign corporation, all of the income of which is derived from an active business
B) Dividend received from a 20 percent owned foreign corporation, all of the income of which is derived from an active business
C) Dividend received from a 100 percent owned foreign corporation, all of the income of which is derived from an active business
D)None of the dividends are classified as passive category income

Question 60

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

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 61

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%.

Question 62

Which of the following exceptions could cause subpart F income to be excluded from the deemed dividend regime?

A) The full inclusion rule
B) The de minimis rule
C) The high tax rule
D)The de minimis rule and the high tax rule could cause subpart F income to be excluded from the deemed dividend regime.

Question 63

Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in 2016. Taxable income included $1,800,000 of foreign source taxable income from the company's branch operations in Canada. All of the branch income is general category income. Reno paid Canadian income taxes of $720,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover for 2016. Use a U.S. corporate tax rate of 34%.

Question 64

Natsumi is a citizen and resident of Japan. She has a full-time job in Japan and has lived there with her family for the past 20 years. In 2014, Natsumi came to the United States on business and stayed for 240 days. She came to the United States again on business in 2015 and stayed for 120 days. In 2016 she came back to the United States on business and stayed for 120 days. Does Natsumi meet the U.S. statutory definition of a resident alien in 2016 under the substantial presence test?

Question 65

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?

A) Potential deferral 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 66

Which of the following persons should not be treated as a "U.S. shareholder" of a controlled foreign corporation (CFC) for subpart F purposes?

A) A U.S. citizen owning 5 percent of the CFC
B) A U.S. citizen owning 15 percent of the CFC
C) A U.S. corporation owning 15 percent of the CFC
D)All of these persons are U.S. shareholders for subpart F purposes

Question 67

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?

A) Potential deferral 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 68

Which of the following statements best describes the operation of subpart F as it applies to income earned by a foreign corporation?

A) Subpart F causes all income of a controlled foreign corporation to be treated as a deemed dividend to all U.S. persons owning stock in the corporation on the last day of the corporation's tax year.
B) Subpart F causes certain income of a controlled foreign corporation to be treated as a deemed dividend to all U.S. persons owning stock in the corporation on the last day of the corporation's tax year.
C) Subpart F causes certain income of a controlled foreign corporation to be treated as a deemed dividend to only those U.S. shareholders owning stock in the corporation on the last day of the corporation's tax year.
D)Subpart F causes all income of a controlled foreign corporation to be treated as a deemed dividend to only those U.S. shareholders owning stock in the corporation on the last day of the corporation's tax year.

Question 69

What form is used by a U.S. corporation to "check-the-box" to elect the U.S. tax consequences of forming a hybrid entity outside the United States?

A) Form 1118
B) Form 1120
C) Form 8832
D)Form 8833

Question 70

A rectangle with a triangle within it is a symbol used to represent what organizational form?

A) Partnership
B) Corporation
C) Hybrid entity treated as a branch for U.S. tax purposes
D)Hybrid entity treated as a partnership for U.S. tax purposes

Question 71

Before subpart F applies, a foreign corporation must be a CFC for how many consecutive days?

A) 1
B) 30
C) 183
D)365

Question 72

Holmdel, Inc., a U.S. corporation, received the following sources of income during 2016:
$10,000 interest income from a loan to its 100 percent owned Swiss subsidiary
$50,000 dividend income from its 100 percent owned French subsidiary
$100,000 royalty income from its Bermuda subsidiary for use of a trademark outside the United States
$25,000 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey
$50,000 capital gain from sale of stock in its 40 percent owned Japanese joint venture. Title passed in Japan.
What amount of foreign source income does Holmdel have in 2016?

Question 73

Windmill Corporation, a Dutch corporation, is owned by the following unrelated persons: 50 percent by a U.S. corporation, 5 percent by a U.S. individual, and 45 percent by a Swiss corporation. During the year, Windmill earned $2,000,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Windmill?

A) Windmill is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $1,000,000 and $100,000, respectively.
B) Windmill is a CFC and only the U.S. corporation will have a deemed dividend of $1,000,000.
C) Windmill is a CFC and the U.S. corporation, U.S. individual, and Swiss corporation will have a deemed dividend of $1,500,000, $100,000, and $900,000, respectively.
D)Windmill is not a CFC and none of the shareholders will have a deemed dividend under subpart
F)

Question 74

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2016. Included in the computation of taxable income was foreign source taxable income of $200,000, of which $87,500 was a dividend received from the corporation's 100 percent owned subsidiary in Ireland. The dividend brought with it a deemed paid credit of $12,500. In addition, a withholding tax of $4,375 was imposed on the dividend. Compute Boca Corporation's net U.S. tax liability for 2016. Assume a U.S. tax rate of 34 percent.

A) $335,625
B) $327,500
C) $327,375
D)$323,125

Question 75

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

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

Question 76

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

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.

Question 77

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

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 78

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?

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 79

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 2014, Nicole came to the United States on business and stayed for 180 days. She came to the United States again on business in 2015 and stayed for 150 days. In 2016 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 2016 under the substantial presence test?

Question 80

A rectangle with an inverted triangle within it is a symbol used to represent what organizational form?

A) Partnership
B) Corporation
C) Hybrid entity treated as a corporation for U.S. tax purposes
D)Hybrid entity treated as a partnership for U.S. tax purposes