Exam 13: Jurisdictional Issues in Business Taxation

Jovar Inc.,a U.S.multinational,began operations this year.Jovar had pretax U.S.source income and foreign source income as follows: Jovar paid $50,000 income tax to Country O.Compute Jovar's U.S.tax liability if it takes the foreign tax credit.

Cambridge,Inc.conducts business in states X and Y.This year,its before-tax income was $150,000.Below is information regarding its sales,payroll,and property factors in both states. Both states apply an equally-weighted three-factor formula to apportion income.State X has a 10% corporate income tax and state Y has a 5% corporate income tax.Compute the state tax savings if Cambridge could relocate $100,000 of property and $50,000 of payroll from state X to state Y.

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S.rate.

Berger is a controlled foreign corporation with $2 million of subpart F income and $3.5 million of global intangible low-taxed income.Salter,Inc.,a U.S.corporation,owns 100% of Berger's stock.Compute Salter's incremental U.S.tax liability (before credits)resulting from its ownership of Berger.

Which of the following statements regarding Internal Revenue Code Section 482 is false?

This year,Plateau,Inc.'s before-tax income was $4,765,000.Plateau paid $310,000 income tax to state A and $130,000 income tax to state B. a.Compute Plateau's federal taxable income and tax liability. b.What is Plateau's overall income tax rate?

Chester,Inc.,a U.S.multinational,earned $4 million this year from both domestic and international operations.Of this amount,$1.3 million qualifies as foreign-derived intangible income (FDII).If Chester pays no foreign income tax,compute its worldwide tax burden as a percentage of its pretax income.

Pennworth Corporation operates in the United States and foreign country M.Its domestic subsidiary Delco,Inc.operates in foreign country N.This year,the two corporations report the following. If Pennworth and Delco file a consolidated U.S.tax return,compute consolidated income tax liability.

A U.S.parent corporation that receives a dividend from a wholly-owned foreign subsidiary that pays a 45% income tax to its home country typically does not owe any U.S.tax on the dividend.

Economic nexus:

In determining the portion of a firm's total income subject to a state's income tax,most states use an apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).

Which of the following statements regarding controlled foreign corporations is true?

The Quad affiliated group consists of Quad,a Delaware corporation,and its three wholly-owned subsidiaries.This year,the four corporations report the following net income (loss). If Quad elects to file a consolidated U.S.tax return,compute consolidated taxable income assuming that subsidiaries 1 and 2 are domestic corporations and subsidiary 3 is a foreign corporation.

Tri-State's,Inc.operates in Arkansas,Oklahoma,and Kansas.Assume that each state has adopted the UDITPA formula.During the corporation's tax year ended December 31,the apportionment data indicated: Tri-State's income for the current year is $250,000.Approximately how much will be taxed by Kansas?

A foreign branch operation of a U.S.corporation is not a separate legal entity.

The sales factor in the UDITPA state income tax apportionment formula equals in-state sales divided by total sales.

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

If a U.S.multinational corporation incurs start-up losses from foreign operations,which of the following organizational forms provide immediate U.S.tax savings from the deduction of the losses?

For dividends received prior to 2018,the deemed paid foreign tax credit was available only to U.S.corporations that own 30% or more of the voting stock of a foreign corporation that paid dividends during the taxable year.

The United States has jurisdiction to tax income earned by any foreign corporation that is a controlled subsidiary of a U.S.parent corporation.