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Exam 9: Taxation of International Transactions

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Question 51

True/False

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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) True
B) False

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Question 52

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The U.S. system for taxing income earned inside its borders by non-U.S. persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

A) True
B) False

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Question 53

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USCo, a U.S. corporation, reports worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly owned foreign corporation. ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings. What is USCo's deemed paid foreign tax credit related to the dividend received before consideration of any limitation) ?

ForCo, a foreign corporation, receives interest income of $100,000 from USCo, an unrelated domestic corporation. USCo has historically earned 85% of its income from foreign sources. What amount of ForCo's interest income is U.S. source?

Match the definition with the correct term. -A country with very low or no income tax.

Unused foreign tax credits are carried back two years and then forward 20 years.

Kipp, a U.S. shareholder under the CFC provisions, owns 40% of a CFC. If the CFC's Subpart F income for the taxable year is $200,000, Kipp is taxed on receipt of a constructive dividend of $80,000.

Goolsbee, Inc., a U.S. corporation, generates U.S.-source and foreign-source gross income. Goolsbee's assets tax basis) are as follows. $\begin{array} { l r } \text { Generating U.S.-source income } & \$ 15,000,000 \\\text { Generating foreign-source income } & \underline { 25,000,000 } \\\text { Total } & \$ 40,000,000 \\\hline\end{array}$ Goolsbee incurs interest expense of $200,000. Apportion interest expense to foreign-source income.

U.S. income tax treaties typically:

Discuss the primary purposes of income tax treaties.

SunCo, a U.S. corporation, owns a number of patents related to designing sunglasses. SunCo licenses these patents to unrelated parties. SpainCo, a Spanish corporation, paid SunCo $78,000 in royalties related to these licenses. SpainCo uses the patent information in its manufacturing process in its Texas plant. WiscCo, a domestic corporation, paid SunCo $32,000 in royalties related to the licenses. WiscCo uses the patent information in its manufacturing process in its Germany manufacturing plant. How much U.S.-source royalty income did SunCo earn from these licenses?

A qualified business unit of a U.S. corporation that operates in Germany generally uses the Euro as its functional currency.

Match the definition with the correct term. -Treasury powers over transfer pricing.

In year 1, George renounces his U.S. citizenship and moves to Fredonia, where income tax rates are very low. George is a multimillionaire and says he "has had it" with high Federal income taxes on wealthy individuals like himself. In year 4, George's U.S.-source income is $1.5 million. That income escapes Federal income taxes.

In which of the following independent situations would Slane, a foreign corporation, be classified as a controlled foreign corporation? The Slane stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.

Kunst, a U.S. corporation, generates $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket. Kunst's worldwide taxable income is $1,200,000, and its U.S. tax liability before FTC is $240,000. Foreign taxes attributable to the general income basket are $60,000 and to the passive income are $4,000. What is Kunst's foreign tax credit for the tax year?

Which of the following is a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

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.

Match the definition with the correct term. -An individual who gives up U.S. citizenship to avoid U.S. income taxes.

Subpart F income includes portfolio income such as dividends and interest.