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Exam 16: Multijurisdictional Taxation

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Question 21

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A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

A) True
B) False

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Question 22

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The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

A) True
B) False

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Question 23

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A number of court cases in the last several decades have involved the application of a state's nexus rules concerning a business taxpayer.What is the significance of the term nexus when discussing state income taxation?

Which of the following is a principle used in applying the income-sourcing rules under U.S.tax law?

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 source of WaterCo's inventory sales income?

Which of the following persons typically is concerned with the U.S.-sourcing rules for gross income?

Jokerz,a CFC of a U.S.parent,generated $80,000 Subpart F foreign base company services income in its first year of operations.The next year,Jokerz distributes $50,000 cash to the parent,from those service profits.The parent is taxed on $0 in the first year (tax deferral rules apply)and $50,000 in the second year.

Waldo,Inc. ,a U.S.corporation,owns 100% of Orion,Ltd. ,a foreign corporation.Orion earns only general basket income.During the current year,Orion paid Waldo a $5,000 dividend.The foreign tax credit associated with this dividend is $3,000.The foreign jurisdiction requires a withholding tax of 10%,so Waldo received only $4,500 in cash as a result of the dividend.What is Waldo's total U.S.gross income reported as a result of the $4,500 cash received?

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.

Winnie,Inc. ,a U.S.corporation,receives a dividend of $400,000 from a non-CFC foreign corporation.Deemed-paid foreign taxes attributable to the dividend are $120,000.If Winnie elects the FTC,its gross income attributable to this dividend is $400,000.

Flint Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income.Flint's Federal taxable income is $750,000,which includes a $50,000 deduction for state income taxes.During the year,Flint received $10,000 interest on Federal obligations.X tax law does not allow a deduction for state income tax payments. ​ Flint's taxable income for X purposes is:

A domestic corporation is one whose assets are primarily located in the U.S.For this purpose,the primarily located test (>50%)applies.

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:

Compost Corporation has finished its computation of Federal taxable income.In State Q,the derivation of state corporate taxable income starts with the Federal amount and makes a number of modifications.List at least five such modifications that Compost is likely to encounter.In this regard,follow the general UDITPA rules,and list both addition and subtraction modifications.

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.

General Corporation is taxable in a number of states.This year,General made a $100,000 sale from its A headquarters to a State B office of an agency of the U.S.government.General has not established nexus with B.State A does not apply a throwback rule.In which state(s) will the sale be included in the sales factor numerator?

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

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?

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?

Dividends received from a domestic corporation are totally U.S.source: