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Exam 25: Taxation of International Transactions

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Question 51

True/False

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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.

A) True
B) False

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Question 52

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Match the definition with the correct term. -Individual who is not a U.S. citizen or resident.

A) Expatriate
B) Resident
C) Nonresident alien
D) U.S. trade or business
E) Branch profits tax
F) Effectively connected income

G) All of the above
H) C) and D)

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Question 53

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

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

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.

Subpart F income includes portfolio income like dividends and interest.

Which of the following determinations requires knowing the amount of one's foreign­source gross income?

Which of the following statements regarding the U.S. taxation of non-U.S. persons 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.

Which of the following statements regarding income sourcing is correct?

Maxim, Inc., a U.S. corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly­owned 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) ?

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

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.

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 foreign­source income from the sale because his home country is not the U.S.

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?

Freiburg, Ltd., a foreign corporation, operates a U.S. branch that reports effectively connected U.S. earnings and profits (after income taxes) of $900,000 for the tax year. The branch's U.S. net equity at the beginning of the tax year is $3.5 million and at the end of the tax year is $2 million. Freiburg is organized in a nontreaty country. Compute Freiburg's branch profits tax for the year.

Performance, Inc., a U.S. corporation, owns 100% of Krumb, Ltd., a foreign corporation. Krumb earns only general basket income. During the current year, Krumb paid Performance a $200,000 dividend. The foreign tax credit associated with this dividend is $30,000. The foreign jurisdiction requires a withholding tax of 30%, so Performance received only $140,000 in cash as a result of the dividend. What is Performance's total U.S. gross income reported as a result of the $140,000 cash received?

ForCo, a non-U.S. corporation based in Aldonza, purchases widgets from USCo, Inc., its U.S. parent corporation. The widgets are sold by ForCo to an unrelated foreign corporation in Aldonza. The income from sale of the widgets by ForCo is Subpart F foreign base company sales income.

Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign employer. She spends 50 days in the United States and earns $20,000 for a two-month period. This amount is attributable to 40 U.S. working days and 10 non-U.S. working days. Her employer does not have a U.S. trade or business and Liang spends no other time in the U.S. for the tax year. Liang's U.S.­source taxable income is:

U.S. individuals who receive dividends from foreign corporations may claim the deemed-paid foreign tax credit related to such dividends.