Exam 2: Corporate Formations and Capital Structure

Identify which of the following statements is true.

Which of the following statements about a partnership is true?

Excess foreign taxes in one basket cannot offset limitation amounts in another basket.

Karen, a U.S. citizen, earns $40,000 of taxable income from U.S. sources, $20,000 in taxable wages from Country A and $20,000 in taxable interest from Country B. The U.S. tax rate is 25%. The tax on Country A income is $8,000, and Country B charges no tax on the interest income. Assuming only a single basket is required, Karen's foreign tax credit that can be claimed is

Which of the following is an advantage of conducting foreign operations through a branch?

Reba, a cash basis accountant, transfers all of the assets and liabilities of her practice to Able Corporation in exchange for all of Able Corporation's stock. The assets include $20,000 of accounts receivable. What is the Corporation's basis in the receivables? Will the corporation be taxed on the receivables, as they are collected?

Business assets of a sole proprietorship are owned by

Jacque, a single nonresident alien, is in the United States for 80 days in the current year engaging in the conduct of a U.S. trade or business. Jacque has $3,000 of interest income earned on a bank account in his home country and $1,800 of interest income earned on a bank account located in Addison, Illinois. How will the interest be taxed and how will the tax be collected?

A foreign corporation with a single class of stock is owned equally by Jericho Corporation, a U.S. corporation, and Joshua, a nonresident alien. Joshua owns no Alpha Corporation stock. Is the foreign corporation a controlled foreign corporation (CFC)?

Jane and Joe plan to go into business together. They plan to incorporate the business. What tax issues should the consider when deciding whether or not to elect S corporation status? • Are their individual marginal tax rates lower or higher than a C corporation's marginal tax rates? • Do they anticipate profits or losses in the first few years of business? • Will the corporation generate any capital gains or losses? • Do they plan to withdraw money from the corporation? • Will they want or need fringe benefits? • Do they plan to use a calendar year end or a fiscal year end?

S corporations must allocate income to shareholders based on their proportionate stock ownership.

U.S. citizen who has a calendar tax year establishes a tax home and residence in a foreign country and qualifies for the foreign- earned income exclusion for 60 days in 2016; 365 days in 2017; and 60 days in 2018. The maximum earned income exclusion for 2018 rounded to the nearest whole number is?

U.S. citizen Barry is a bona fide resident of a foreign country for all of 2018. Barry uses a calendar year as his tax year and receives $158,000 in salary and allowances from his employer. Included in the $158,000 is a $25,000 housing allowance. Barry's housing costs are $30,000. The base housing amount for the current year is $16,624. What amount related to his housing can Barry exclude on his Form 2555?

For the foreign credit limitation calculation, income derived from the sale of inventory which is produced by the seller, is considered earned

A U.S. citizen accrued $120,000 of creditable foreign taxes last year. The citizen's foreign tax credit limitation for last year is $90,000 (only a single limitation need be calculated). The excess foreign tax credit limitation for the year preceding the year in which the excess foreign taxes were incurred is $2,000. A similar $2,000 excess foreign tax credit limitation position is expected in each of the next 10 years. What portion of the excess foreign taxes can be expected to be noncreditable because of the foreign tax credit limitation?

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly- formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $80,000 and a short- term note with a $20,000 FMV. Henry's recognized gain is

A shareholder's basis in stock received in a Sec. 351 transaction is

Music Corporation is a CFC incorporated in Country M. Music receives interest and dividends from its two foreign subsidiary corporations, Sharp Corporation and Flat Corporation. Sharp is incorporated in Country S and conducts all of its activities in that country. Flat is incorporated in Country M and conducts all of its activities in that country. Are the interest and dividends received by Music Corporation FPHCI?

Guinness Corporation, a U.S. corporation, began operating overseas in the current year. This year, Guinness sold machine tools that it manufactured in the United States to Canadian companies from a branch office located in Toronto, purchased a 40% investment in a Brazilian corporation from which it received a dividend, and received royalties from an English firm that is the licensee of machine tool patents held by Guinness. The English firm uses the patents to manufacturer machine tools it sells in England. What international tax issues should Guinness's Director of Taxes consider with respect to these activities?

Describe the financial statement implications of the foreign tax credit and a foreign subsidiary.