Exam 13: Jurisdictional Issues in Business Taxation

Supplies,Inc.does business in Georgia (6% tax rate)and Alabama (5% tax rate).All other factors being equal,the company will reduce state taxes if it increases the compensation paid to its employees in Alabama.Assume apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).

Pogo,Inc.,which has a 21 percent marginal tax rate,owns 50 percent of the stock of a CFC.At the beginning of the year,Pogo's basis in the CFC stock was $2 million.The CFC's current year earnings were $750,000 of which $600,000 was subpart F income and zero was global intangible low-taxed income.The CFC paid no foreign income tax and distributed no dividends. a.Explain Pogo's U.S.tax consequences with respect to its investment in the CFC. b.Compute Pogo's basis in its CFC stock at the end of the year.

Galaxy Corporation conducts business in the U.S.and in Country X.In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

Which of the following statements about organizational forms for conducting foreign operations is false?

A U.S.taxpayer can make an annual election to take a credit or a deduction for foreign income taxes paid.

The income earned by a foreign branch operation of a U.S.corporation is taxable by the United States only when repatriated.

A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.

Wilmington,Inc.,a Pennsylvania corporation,manufactures computer components that it sells to Seine Corporation,a French company,for assembly into finished products.Wilmington owns 90% of Seine's stock.Wilmington's cost per component is $5,its selling price per component is $16,and it sold 110,000 components to Seine this year.Wilmington's taxable income as reported on its Form 1120 was $2,400,000,and Seine's taxable income as reported on its French corporate income tax return was $1,750,000.Determine the effect on the taxable incomes of both corporations if the IRS determines that an arm's length transfer price per component is $23.

Which of the following entities is not subject to U.S.federal income tax?

Transfer pricing issues arise:

Tradewinds is a Bermuda corporation that is 100% owned by Larkin,a U.S.corporation.Which of the following transactions generates subpart F income for U.S.tax purposes?

Transfer prices cannot be used by U.S.corporations and their foreign affiliates to shift income between taxing jurisdictions.

Section 482 of the Internal Revenue Code gives the IRS the authority to apportion or allocate gross income,deductions,or credits between/among related parties to correct any perceived distortion resulting from unrealistic prices charged by members of the group to each other for goods or services.

GAAP-based consolidated financial statements include only income earned by the consolidated group's domestic subsidiaries.

Which of the following statements about income tax treaties is false?

A corporation is usually subject to tax by any state in which it engages in any business transactions.

Mega,Inc.,a U.S.multinational,has pretax U.S.source income and foreign source income as follows: Mega paid $15,000 income tax to Country M.Mega has a $25,000 foreign tax credit carryforward.What is Mega's U.S.tax liability if it takes the foreign tax credit?

Article 1 of the U.S.Constitution,referred to as the commerce clause,prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Which of the following statements about the Uniform Division of Income for Tax Purposes Act (UDITPA)is false?

Foreign value-added taxes and excise taxes are eligible for the U.S.foreign tax credit.