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Exam 25: Taxation of International Transactions

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Question 41

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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:

A) $84,000.
B) $70,000.
C) $40,000.
D) $30,000.

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

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Question 42

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OutCo,a controlled foreign corporation,earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies.All of the unrelated companies are located in OutCo's country of incorporation.OutCo's Subpart F income for the year is:

A) $0.
B) $0 only if OutCo is engaged in a trade or business in its home country.
C) $600,000 only if OutCo is engaged in a trade or business in its home country.
D) $600,000.

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

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Question 43

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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 source of AirCo's inventory sales income?

A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

Subpart F income includes portfolio income like dividends and interest.

ForCo,a foreign corporation,purchases widgets from USCo,Inc.,its U.S.parent corporation.The widgets are sold by ForCo to another unrelated foreign corporation in the same country as ForCo.The income from sale of the widgets by ForCo is not Subpart F foreign base company sales income.

Which of the following statements regarding a foreign person's U.S.tax consequences is true?

RainCo,a domestic corporation,owns a number of patents related to designing umbrellas.RainCo licenses these patents to unrelated parties.TexCo,a domestic corporation,paid RainCo $100,000 in royalties related to these licenses.TexCo uses the patent information in its manufacturing process in its Canadian plant.IrishCo,an Irish corporation,paid RainCo $25,000 in royalties related to the licenses.IrishCo uses the patent information in its manufacturing process in its Michigan manufacturing plant.How much foreign-source royalty income did RainCo earn from these licenses?

BrazilCo,Inc.,a foreign corporation with a U.S.trade or business,has U.S.-source income as follows. Determine BrazilCo's total U.S.tax liability for the year assuming a 35% corporate rate and no tax treaty.Assume BrazilCo leaves its U.S.branch profits invested in the United States and does not otherwise repatriate any of its U.S.assets during the year.

Twelve unrelated U.S.persons own a foreign corporation equally.The foreign corporation is a CFC.

Steve,Inc.,a U.S.shareholder owns 100% of a CFC from which Steve receives a $3 million cash distribution.The CFC's E & P is composed of the following amounts. Steve recognizes a taxable dividend of:

USCo,a domestic corporation,receives $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket.Worldwide taxable income is $1,200,000 and the 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 USCo's foreign tax credit for the tax year?

Flan,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.Flan's U.S.and foreign assets are as follows. How should Flan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Which of the following statements is false in regard to the U.S.income tax treaty program?

RedCo,a domestic corporation,incorporates its foreign branch in a § 351 exchange,creating GreenCo,a wholly owned foreign corporation.RedCo transfers $200 in Yen (basis = $150) and $900 in land (basis = $925) to GreenCo.GreenCo uses these assets in carrying on a trade or business outside the United States.What gain or loss,if any,is recognized as a result of this transaction?

The following income of a foreign corporation is not subject to the regular U.S.corporate income tax rates.

Fulton,Ltd.,a foreign corporation,operates a U.S.branch that reports effectively connected U.S.earnings and profits (after income taxes) of $600,000 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:

Which of the following determinations does not require knowing the amounts of one's U.S.- versus foreign-source income?

Wood,a U.S.corporation owns 30% of Hout,a foreign corporation.The remaining 70% of Hout is owned by other foreign corporations not controlled by Wood.Hout's functional currency is the euro.Wood receives a 50,000€ distribution from Hout.If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1,the exchange rate at year end is .95€: $1,and on the date of the dividend payment the exchange rate is 1.1€: $1,what is Wood's tax result from the distribution?

Generally,accrued foreign taxes are: