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Exam 25: Taxation of International Transactions

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Question 51

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Which of the following is not a foreign person?

A) Foreign corporation 51% owned by U.S. shareholders.
B) Foreign corporation 100% owned by a domestic corporation.
C) Citizen of Germany with U.S. permanent resident status (i.e., green card) .
D) Citizen of Italy who spends 14 days vacationing in the United States.

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

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Question 52

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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?

A) It is foreign-source income subject to U.S. taxation.
B) It is foreign-source income not subject to U.S. taxation.
C) It is U.S.-source income subject to U.S. taxation.
D) It is U.S.-source income exempt from U.S. taxation.

E) None of the above
F) B) and C)

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Question 53

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Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. a.Indirect credit b.Direct credit c.One d.Two e.Ten f.Twenty g.Gross-up (§ 78) h.​Overall foreign loss -Maximum years for a foreign tax credit carryforward.

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.

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

A Qualified Business Unit of a U.S.corporation that operates in Germany generally uses the Euro as its functional currency.

USCo,a U.S.corporation,reports worldwide taxable income of $1,500,000,including a $300,000 dividend from ForCo,a wholly-owned 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) ?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. a.Indirect credit b.Direct credit c.One d.Two e.Ten f.Twenty g.Gross-up (§ 78) h.​Overall foreign loss -Foreign tax credit allowed for withholding taxes on payments from foreign sources.

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?

Subpart F income includes portfolio income like dividends and interest.

In working with the foreign tax credit,a U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

The transfer of the assets of a U.S.corporation's foreign branch to a newly formed foreign corporation is always tax deferred under § 351.

LocalCo merges into HeirCo,a non-U.S.entity,in a transaction that would qualify as a "Type A" reorganization.The resulting realized gain is tax-deferred under U.S.income tax law,using §§ 351 and 368.

Julio,a nonresident alien,realizes a gain on the sale of commercial real estate located in Omaha.The real estate was sold to Mariana,Julio's cousin who is also a nonresident alien.Julio recognizes foreign-source income from the sale because his home country is not the U.S.

Which of the following statements regarding a non-U.S.person's U.S.tax consequences is true?

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

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.

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

Carol,a citizen and resident of Adagio,reports gross income that is effectively connected with a U.S.business.No deductions are allowed against this income,and Carol's U.S.tax rate is a flat 30 percent.

RainCo,a U.S.corporation,owns a number of patents related to designing umbrellas.RainCo licenses these patents to unrelated parties.TexCo,a domestic corporation,paid RainCo $100,000 in royalties related to these licenses.TexCo uses the patent information in its manufacturing process in its Canadian plant.IrishCo,an Irish corporation,paid RainCo $25,000 in royalties related to the licenses.IrishCo uses the patent information in its manufacturing process in its Michigan manufacturing plant.How much U.S.-source royalty income did RainCo earn from these licenses?