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Exam 9: Taxation of International Transactions

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Question 21

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

A) Purchase of inventory from unrelated party and sale outside the CFC country.
B) Purchase of inventory from a related party 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) None of the above transactions.

F) A) and C)
G) C) and D)

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Question 22

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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:

A) $84,000.
B) $70,000.
C) $40,000.
D) $30,000.

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

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Question 23

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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?

The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

BrazilCo,Inc. ,a foreign corporation with a U.S.trade or business,has U.S.-source income as follows. Determine BrazilCo's total U.S.tax liability for the year,assuming a 35% corporate rate and no tax treaty.BrazilCo leaves its U.S.branch profits invested in the United States and does not otherwise repatriate any of its U.S.assets during the year.

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

In which of the following independent situations would Slane,a foreign corporation,be classified as a controlled foreign corporation? The Slane stock is directly owned 12% by Jen,10% by Kathy,12% by Leslie,10% by David,8% by Ben,and 48% by Mike.

Peanut,Inc. ,a domestic 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?

A U.S.taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect)paid or accrued.

U.S.income tax treaties:

Lang,an NRA who was not a resident of a treaty country,receives taxable dividends of $50,000 from U.S.corporations.Lang does not conduct a U.S.trade or business.Lang's dividends are taxed by the United States through withholding by the payor of:

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 foreign tax credit related to the Starke dividend?

The following persons own Schlecht Corporation,a foreign corporation. None of the shareholders are related.Subpart F income for the tax year is $300,000.No distributions are made.Which of the following statements is correct?

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?

Serena,a nonresident alien,is employed by GlobalCo,a foreign corporation.Serena works in the United States for 3 days during the year,receiving a gross salary of $2,500 for this period.GlobalCo is not engaged in a U.S.trade or business.Under the "commercial traveler" exception,the $2,500 is not classified as U.S.-source income.

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

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 Urugauy.Freda's net U.S.income from the widgets is subject to a flat 30% Federal income tax rate.

A tax haven often is:

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: $1.35.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?

Krebs,Inc. ,a U.S.corporation,operates an unincorporated branch manufacturing operation in the U.K.Krebs,Inc. ,reports $900,000 of taxable income from the U.K.branch on its U.S.tax return,along with $1,600,000 of taxable income from its U.S.operations.The U.K.branch income is all general limitation basket income.Krebs paid $270,000 in U.K.income taxes related to the $900,000 in branch income.Assuming a U.S.tax rate of 35%,what is Krebs' U.S.tax liability after any allowable foreign tax credits?