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Exam 16: Multijurisdictional Taxation

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Question 41

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A controlled foreign corporation (CFC) realizes Subpart F income from:

A) Purchase of inventory from unrelated U.S. person and sale outside the CFC country.
B) Purchase of inventory from a related U.S. person and sale outside the CFC country.
C) Services performed for the U.S. parent in a country in which the CFC was organized.
D) Services performed on behalf of an unrelated party in a country outside the country in which the CFC was organized.

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

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Question 42

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In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact, and allocated according to the location of property owned or used.

A) True
B) False

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Question 43

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Adams Corporation owns and operates two manufacturing facilities, one in State X and the other in State Y. Due to a temporary decline in the corporation's sales, Adams has rented 20% of its Y facility to an unaffiliated corporation. Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. ​ Adams is incorporated in Y. For X and Y purposes, rental income is classified as allocable nonbusiness income. By applying the statutes of each state, Adams determined that its apportionment factors are .65 for X and .35 for Y. ​ Adams's income attributed to X is:

Dark, Inc., a U.S. corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany. Dark reports $100,000 of taxable income from Dunkel on its U.S. tax return, along with $400,000 of taxable income from its U.S. operations. Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S. tax rate of 35%, what is Dark's U.S. tax liability after any allowable foreign tax credits?

Freda was born and continues to live in Uruguay. She exports widgets to U.S. customers. The U.S. does not have in force an income tax treaty with Uruguay. Freda's net U.S. income from the widgets is subject to a flat 30% Federal income tax rate.

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

In allocating interest expense between U.S. and foreign sources, a taxpayer elects to use either the tax basis of the income-producing assets or their fair market values.

Hill Corporation is subject to tax only in State X. Hill generated the following income and deductions. State income taxes are not deductible for X income tax purposes. ​ a.​The starting point in computing the State X income tax base is Federal taxable income. Derive this amount. b.​Determine Hill's State X taxable income, assuming that interest on X obligations is exempt from State X income tax. c.​Determine Hill's taxable income, assuming that interest on X obligations is subject to State X income tax.

Kilps, a U.S. corporation, receives a $200,000 dividend from a 20% owned foreign corporation. The deemed-paid taxes attributable to this dividend are $40,000 and foreign taxes withheld on remittance of the dividend are $30,000. Kilps's U.S. tax liability before the FTC is $350,000, the gross dividend income is $240,000, and Kilps's worldwide taxable income is $1 million. Kilps's foreign tax credit for the taxable year is:

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

José Corporation realized $900,000 taxable income from the sales of its products in States X and Z. José's activities in both states establish nexus for income tax purposes. José's sales, payroll, and property among the states include the following. ​ Z utilizes a double-weighted sales factor in its three-factor apportionment formula. How much of José's taxable income is apportioned to Z?

The United States has in force income tax treaties with about 70 countries.

Income tax treaties provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

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

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.

Maxim, Inc., a U.S. 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 $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) ?

USCo, a U.S. 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?

U.S. income tax treaties typically:

Your supervisor has shifted your responsibilities from the Federal corporate income tax to a multistate corporate income tax practice. In what areas might your Federal income tax knowledge also be applicable in your new assignment?

The "residence of seller" rule is used in determining the sourcing of all gross income and deductions of a U.S. multinational business.