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Exam 25: Taxation of International Transactions

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Question 31

Multiple Choice

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Generally, accrued foreign income taxes are translated at the:

A) Exchange rate when the taxes are paid.
B) Exchange rate on the date when the taxes are accrued.
C) Average exchange rate for the tax year to which the taxes relate.
D) Average exchange rate for the last five tax years.

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

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Question 32

Multiple Choice

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U.S. income tax treaties can be described as:

A) Napoleonic.
B) Spoke-and-Wheel.
C) Balanced.
D) Bilateral.

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

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Question 33

Multiple Choice

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

Unused foreign tax credits are carried back two years and then forward 20 years.

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

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Upon repatriation to a CFC, it does not create dividend income.

Which of the following is not a foreign person?

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 $30,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S. tax rate of 21%, what is Dark's U.S. tax liability after any allowable foreign tax credits?

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?

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 sourcing of AirCo's inventory sales income?

With respect to income generated by non-U.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.

A domestic corporation is one whose assets are primarily located in the United States. For this purpose, the primarily located test (greater than 50%) applies.

Wellington, Inc., a U.S. corporation, owns 30% of a CFC that has $50 million of earnings and profits for the current year. Included in that amount is $20 million of Subpart F income. Wellington has been a CFC for the entire year and makes no distributions in the current year. Wellington must include in gross income:

Yvonne is a citizen of France and does not have permanent resident status in the United States. During the last three years, she has spent a number of days in the United States. Current year - 150 days First prior year - 150 days Second prior year - 90 days Is Yvonne treated as a U.S. resident for the current year?

Purchase of inventory from a U.S. parent followed by which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia?

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

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.

Nico lives in California. She was born in Peru but holds a green card. Nico is a nonresident alien (NRA).

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

Waltz, Inc., a U.S. taxpayer, pays foreign taxes of $50,000 on foreign-source general basket income of $90,000. Waltz's worldwide taxable income is $450,000, on which it owes U.S. taxes of $94,500 before FTC. Waltz's FTC is $50,000.