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Exam 9: Taxation of International Transactions

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Question 51

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Subpart F income includes portfolio income like dividends and interest.

A) True
B) False

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Question 52

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Given the following information, determine if FanCo, a foreign corporation, is a CFC. Shareholders of Voting foreign corporation power Classification Murray 24% U.S. person Nancy 20% U.S. person Otto 40% Foreign person Patricia 16% U.S. person Patricia is Murray's daughter.

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Question 53

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Arendt, Inc., a U.S. corporation, purchases a piece of equipment for use in its manufacture of custom pianos. The equipment is acquired in Ireland at a cost of 200,000 euros when 1 euro: $1.35. Payment is due in 90 days. Arendt acquires 200,000 euros and pays for the machine when 1 euro: $1.15. What is the basis of the asset to Arendt and what is the foreign currency exchange gain or loss, if any?

AirCo, a domestic corporation, purchases inventory for resale from unrelated distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States. What is the source of AirCo's inventory sales income?

Kilps, a U.S. corporation, receives a $200,000 dividend from a 20% owned foreign corporation. The deemed-paid taxes attributable to this dividend are $40,000 and foreign taxes withheld on remittance of the dividend are $30,000. Kilps's U.S. tax liability before the FTC is $350,000, the gross dividend income is $240,000, and Kilps's worldwide taxable income is $1 million. Kilps's foreign tax credit for the taxable year is:

A U.S. taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect) paid or accrued.

Chang, an NRA, is employed by Fisher, Inc., a foreign corporation. In November, Chang spends 10 days in the United States performing consulting services for Fisher's U.S. branch. She earns $5,000 per month. A month includes 20 workdays.

Which of the following determinations does not require knowing the amounts of one's U.S.­ versus foreign­source income?

Gains on the sale of U.S. real property held directly or indirectly through U.S. stock ownership by NRAs and foreign corporations are subject to tax at capital gains rates under FIRPTA.

A U.S. business conducts international communications activities between the U.S. and Spain. The resulting income is sourced 100% to the U. S., the residence of the taxpayer.

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.­source?

U.S. income tax treaties typically:

The following income of a foreign corporation is not subject to the regular U.S. corporate income tax rates.

WaterCo, a domestic corporation, purchases inventory for resale from unrelated distributors outside the U.S. It resells this inventory to U.S. customers, with title passing inside the United States. What is the source of WaterCo's inventory sales income?

With respect to income generated by non­U.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.

Interest paid to an unrelated party by a domestic corporation that historically earns more than 50% of its gross income each year from the conduct of an active trade or business outside the United States is foreign-source income.

Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia's gross income related to the Starke dividend?

Which of the following statements is false in regard to the U.S. income tax treaty program?

Ownership percentage required before a deemed paid foreign tax credit is allowed.

Krebs, Inc., a U.S. corporation, operates an unincorporated branch manufacturing operation in the U.K. Krebs, Inc., reports $900,000 of taxable income from the U.K. branch on its U.S. tax return, along with $1,600,000 of taxable income from its U.S. operations. The U.K. branch income is all general limitation basket income. Krebs paid $270,000 in U.K. income taxes related to the $900,000 in branch income. Assuming a U.S. tax rate of 35%, what is Krebs' U.S. tax liability after any allowable foreign tax credits?