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Exam 9: Taxation of International Transactions

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Question 21

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Olde Town, Inc., a U.S. corporation, earns $100,000 in passive foreign-source income and suffers a net loss of $60,000 in the general basket. What is the numerator of Olde Town's FTC limitation formula for the passive basket in the current year?

A) $0
B) $40,000
C) $60,000
D) $100,000

E) A) and D)
F) B) and C)

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Question 22

True/False

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The U.S. system for taxing income earned outside its borders by U.S. persons is referred to as the territorial approach, because only income earned within the U.S. border is subject to taxation.

A) True
B) False

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Question 23

Multiple Choice

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Which of the following would not prevent an alien without a "green card" from being classified as a U.S. resident for income tax purposes?

Bighley shows the following results for the year. Bighley offsets the general-basket loss against U.S.-source income for the current tax year. U.S.-source income $5 million Foreign-source income, general FTC basket ($2 million) Foreign-source income, passive FTC basket $3 million

An appropriate transfer price is one that considers the risks, assets, and functions of the persons to whom income is assigned.

A net loss in all foreign tax credit limitation baskets.

Individual who is not a U.S. citizen or resident.

Olaf, a citizen of Norway with no trade or business activities in the United States, sells at a gain 200 shares of MicroShift, Inc., a U.S. company. The sale takes place through Olaf's broker in Oslo. How is this gain treated for U.S. tax purposes?

Which of the following statements regarding the taxation of U.S. real property gains recognized by non-U.S. persons not engaged in a U.S. trade or business is false? Gains from the disposition of U.S. real property are:

USCo, a U.S. corporation, reports worldwide taxable income of $1,500,000, including a $300,000 dividend from ForCo, a wholly­owned foreign corporation. ForCo's undistributed earnings and profits are $15 million and it has paid $10 million 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) ?

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

Peanut, Inc., a U.S. corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of $5,000 are withheld. Peanut's worldwide taxable income is $900,000, and its U.S. Federal income tax liability before FTC is $270,000. What is Peanut's foreign tax credit?

When a business taxpayer "goes international," the first step usually is to create an overseas branch sales office.

Maxim, Inc., a U.S. corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly­owned foreign corporation. ForCo's undistributed E & P are $15 million and it has paid $6 million of foreign income taxes attributable to these earnings. What is Maxim's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

Without the foreign tax credit, double taxation would result when:

Twenty unrelated U.S. persons equally own all of the stock of Quigley, a foreign corporation. Quigley is a CFC.

Performance, Inc., a U.S. corporation, owns 100% of Krumb, Ltd., a foreign corporation. Krumb earns only general basket income. During the current year, Krumb paid Performance a $200,000 dividend. The foreign tax credit associated with this dividend is $30,000. The foreign jurisdiction requires a withholding tax of 30%, so Performance received only $140,000 in cash as a result of the dividend. What is Performance's total U.S. gross income reported as a result of the $140,000 cash received?

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

Which of the following is not a U.S. person?

U.S. taxpayers earning income outside the United States.