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Exam 25: Taxation of International Transactions

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Question 71

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WorldCo, a foreign corporation not engaged in a U.S. trade or business, receives $50,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 78% of its income from foreign sources. How much of WorldCo's interest income is U.S. source?

A) $0
B) $11,000
C) $39,000
D) $50,000

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

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Question 72

Multiple Choice

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Dividends received from a domestic corporation are totally sourced to the U.S.:

A) If the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business.
B) If the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business.
C) Unless the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business.
D) Unless the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business.
E) In all of the above cases.

F) B) and E)
G) A) and E)

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Question 73

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

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

Which of the following statements regarding the taxation of U.S. real property gains recognized by non-U.S. persons not engaged in a U.S. trade or business is false? Gains from the disposition of U.S. real property are:

Given the following information, determine if FanCo, a foreign corporation, is a CFC.

U.S. income tax treaties:

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

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.

Twenty unrelated U.S. persons equally own all of the stock of Quigley, a foreign corporation. Quigley is a CFC.

Match the definition with the correct term. a. Expatriate b. Resident c. Nonresident alien d. U.S. trade or business e. Branch profits tax f. Effectively connected income -Activity that creates the potential for effectively connected income.

An effective transfer pricing strategy would:

Match the definition with the correct term. a. Inbound b. Outbound c. Allocation and apportionment d. Qualified business unit e. Tax haven f. Income tax treaty g. Section 482 -Foreign taxpayers earning income inside the United States.

Mitch, an NRA, sells a building in Omaha for $1 million. His basis in the building is zero for both regular tax and AMT purposes. Mitch has no other contact with the U.S. other than the ownership of the building. How much Federal income tax is due from Mitch on the sale?

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

Subpart F income includes portfolio income like dividends and interest.

Which of the following statements is true, regarding the sourcing of dividend income?

Match the definition with the correct term. a. Inbound b. Outbound c. Allocation and apportionment d. Qualified business unit e. Tax haven f. Income tax treaty g. Section 482 -A business operation that accounts for profits and losses using its functional currency.

Peanut, Inc., a U.S. 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?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. a. Foreign base company income b. Foreign personal holding company income c. Controlled foreign corporation d. U.S. shareholder e. Previously taxed income f. More than 10 percent g. More than 50 percent h. More than 80 percent -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.