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Exam 9: Taxation of International Transactions

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Question 51

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Arendt, Inc., a U.S. 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€: $1.25. Payment is due in 90 days. Arendt acquires 200,000 euros and pays for the machine when 1€: $1.15. What is the basis of the asset to Arendt and what is the foreign currency exchange gain or loss, if any?

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No foreign currency exchange gain or los...

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Question 52

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During Year 4, Josita, an NRA, receives interest income of $50,000 from Talmadge, Inc., an unrelated U.S. corporation. Considering the following facts related to Talmadge's operations, what is the source of the interest income received by Josita? $\begin{array}{lccc}\text { Year }&\begin{array}{c}\text { U.S.-source } \\\text { income }\end{array} & \begin{array}{c}\text { Active for eign } \\\text { business income }\end{array} & \begin{array}{c}\text { Total gross } \\\text { income }\end{array}\\\hline\text { Year 1 } & \$ 200,000 & \$ 500,000 & \$ 700,000 \\\text { Year } 2 & 50,000 & 950,000 & 1,000,000 \\\text { Year } 3 & 100,000 & 900,000 & 1,000,000 \\\text { Totals } & \mathbf{\$ 3 5 0 , 0 0 0} & \mathbf{\$ 2 , 3 5 0 , 0 0 0} & \mathbf{\$ 2 , 7 0 0 , 0 0 0}\\\text { Year } 4&\$150,000&\$950,000&\$1,100,000\end{array}$

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Talmadge meets the 80% active foreign bu...

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Question 53

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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?

Chipper, Inc., a U.S. corporation, reports worldwide taxable income of $1 million, including a $300,000 dividend from Emma, Inc., a foreign corporation. Chipper's U.S. tax liability before FTC is $340,000. Chipper owns 20% of Emma. Emma's E & P after taxes is $8 million and it has paid foreign taxes of $2 million attributable to that E & P. If Chipper elects the FTC, its U.S. gross income with regard to the dividend from Emma is:

Which of the following persons typically is not concerned with the U.S.-sourcing rules for gross income?

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

Subpart F income includes portfolio income like dividends and interest.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

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

Qwan, a U.S. corporation, reports $250,000 interest expense for the tax year. None of the interest relates to nonrecourse debt or loans from affiliated corporations. Qwan's U.S. and foreign assets are reported as follows. $\begin{array}{l}\text { Fair market value }\\\begin{array}{lr}\text { U.S. assets } & \$ 5,000,000 \\\text { Foreign assets } & \$ 10,000,000 \\\text { Tax book value: } & \\\text { U.S. assets } & \$ 2,000,000 \\\text { Foreign assets } & \$ 6,000,000\end{array}\end{array}$ ? How should Qwan assign its interest expense between U.S. and foreign sources to maximize its FTC for the current year?

Magdala is a citizen of Italy 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 - 120 days First prior year - 150 days Second prior year - 150 days Is Magdala treated as a U.S. resident for the current year?

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

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

Fulton, Ltd., a foreign corporation, operates a U.S. branch that reports effectively connected U.S. earnings and profits (after income taxes) of $800,000 for the tax year. The branch's U.S. net equity at the beginning of the tax year is $2 million and at the end of the tax year is $1.5 million. Fulton is organized in a nontreaty country. Fulton's dividend equivalent amount for the year is:

Kunst, a U.S. corporation, generates $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket. Kunst's worldwide taxable income is $1,200,000, and its U.S. tax liability before FTC is $420,000. Foreign taxes attributable to the general income basket are $60,000 and to the passive income are $4,000. What is Kunst's foreign tax credit for the tax year?

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:

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

Without the foreign tax credit, double taxation would result when:

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

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?