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Exam 9: Taxation of International Transactions

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Question 31

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Which of the following is a special tax regime imposed on certain foreign persons engaged in a U.S.trade or business?

A) Nondiscrimination tax.
B) Windfall U.S.profits tax.
C) Dividend repatriation tax.
D) Branch profits tax.

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

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Question 32

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The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

A) True
B) False

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Question 33

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During the current year,USACo (a domestic corporation) sold equipment to FrenchCo,a foreign corporation,for $350,000,with title passing to the buyer in France.USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment,all of which were allocated to U.S.-source income.USACo's adjusted basis in the equipment is $20,000 on the date of sale.What is the source of the $330,000 gain on the sale of this equipment?

Quest is organized and operates in the U.K.Its U.S.effectively connected earnings for the taxable year are $900,000 and its net U.S.equity has increased by $40,000.Quest's dividend equivalent amount for the tax year is $860,000.

Which of the following is a principle used in applying income sourcing under U.S.rules?

Amber,Inc. ,a domestic corporation receives a $150,000 cash dividend from Starke,Ltd.Amber owns 15% of Starke.Starke's E & P is $2 million and it has paid foreign taxes of $1 million attributable to that E & P.What is Amber's gross income related to the Starke dividend?

Hendricks Corporation,a domestic corporation,owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation,both foreign corporations.Ferrell owns the other 60 percent of Shane Corporation.Both Shane and Ferrell are CFCs.

Section 482 is used by the Treasury to:

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 taxation under FIRPTA.

Wood,a U.S.corporation owns 30% of Hout,a foreign corporation.The remaining 70% of Hout is owned by other foreign corporations not controlled by Wood.Hout's functional currency is the euro.Wood receives a 50,000€ distribution from Hout.If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1,the exchange rate at year end is .95€: $1,and on the date of the dividend payment the exchange rate is 1.1€: $1,what is Wood's tax result from the distribution?

Bighley shows the following results for the year.Bighley offsets the general-basket loss against U.S.-source income for the current tax year.

Unused foreign tax credits are carried back one year and then forward 10 years.

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

Which of the following statements regarding income sourcing is correct?

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

Given the following information,determine if FanCo,a foreign corporation,is a CFC.

Xenia,Inc. ,a U.S.shareholder,owns 100% of Fredonia,a CFC.Xenia receives a $3 million cash distribution from Fredonia.Fredonia's E & P is composed of the following amounts. Xenia recognizes a taxable dividend of:

Abbott,Inc. ,a domestic corporation,reports worldwide taxable income of $8 million,including a $900,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's undistributed E & P are $18 million and it has paid $12 million of foreign income taxes attributable to these earnings.What is Abbott's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

USCo,a domestic corporation,receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld.Its worldwide taxable income is $1,500,000 and its U.S.tax liability before the foreign tax credit is $525,000.What is USCo's allowed foreign tax credit?

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.