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Exam 25: Taxation of International Transactions

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Question 41

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Which of the following statements concerning the sourcing of income from inventory produced by the taxpayer in the United States and sold outside the United States is true?

A) If title passes on the inventory outside the United States,all of the inventory income is foreign source.
B) Because the inventory is manufactured in the United States,all of the inventory income is U.S.source.
C) The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on location of production assets.
D) The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on where the sale negotiation takes place.

E) All of the above
F) None of the above

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Question 42

Multiple Choice

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

A) Foreign persons are subject to U.S.income or withholding tax only if they are engaged in a U.S.-trade or business.
B) Foreign persons may be subject to withholding tax on U.S.-source investment income even if not engaged in a U.S.trade or business.
C) Foreign persons are not taxed on gains from U.S.real property as long as such property is not used in a U.S.trade or business.
D) Once a foreign person is engaged in a U.S.trade or business,the foreign person's worldwide income is subject to U.S.taxation.

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

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Question 43

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GlobalCo,a foreign corporation not engaged in a U.S.trade or business,receives $80,000 in interest income from deposits with the foreign branch of a U.S.bank.The U.S.bank earns 24% of its income from foreign sources.How much of GlobalCo's interest income is U.S.source?

Austin,Inc. ,a domestic corporation,generates U.S.-source and foreign-source gross income.Austin's assets (tax book value)are as follows. Austin incurs interest expense of $180,000.Using the asset method and the tax book value,apportion interest expense to foreign-source income.

Describe the policy reasons behind treating foreign personal holding company income as Subpart F income to CFCs.Your discussion should include two examples of foreign personal holding company income.

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

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

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

Arendt,Inc. ,a domestic 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: $1.25.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?

Monika,a nonresident alien,is employed by GlobalCo,a foreign corporation.Monika works in the United States for 32 days during the year,receiving a gross salary of $2,900 for this period.GlobalCo is not engaged in a U.S.trade or business.Under the "commercial traveler" exception,the $2,900 is not classified as U.S.-source income.

Peanut,Inc. ,a domestic corporation,receives $500,000 of foreign-source interest income on which foreign taxes of $5,000 are withheld.Its worldwide taxable income is $900,000,and U.S.tax liability before FTC is $315,000.What is Peanut's foreign tax credit?

ForCo,a foreign corporation,purchases widgets from USCo,Inc. ,its U.S.parent corporation.The widgets are sold by ForCo to another unrelated foreign corporation in the same country as ForCo.The income from sale of the widgets by ForCo is foreign base company sales income.

U.S.individuals that receive dividends from foreign corporations may not claim the deemed-paid foreign tax credit related to such dividends.

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

Collins,Inc.received gross foreign-source dividend income of $250,000.Foreign taxes withheld on the dividend were $25,000 and no § 902 credit is available.Its worldwide taxable income for the tax year is $500,000.Its U.S.tax before FTC is $175,000.Collins' current year FTC is $87,500.

Given the following information,determine if FanCo,a foreign corporation,is a CFC. Patricia is Murray's daughter.

Which of the following is not a foreign person?

Tax deferred reorganizations involving U.S.-owned foreign corporations may be currently taxable under certain circumstances.

ForCo,a foreign corporation,receives interest income of $100,000 from USCo,an unrelated domestic corporation.USCo has historically earned 82% of its income from foreign sources.What amount of ForCo's interest income is U.S.source?

ForCo,a foreign corporation not engaged in a U.S.trade or business,recognizes a $3 million gain from the sale of land located in the United States.The amount realized on the sale was $50 million.Absent any exceptions,what is the required withholding amount on the part of the purchaser of this land?