Question 1

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

Accepted Answer

A)  Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income. 
B)  Foreign persons with any U.S.-source income are taxed on net investment income (after expenses). 
C)  Foreign persons are not subject to U.S. tax if not engaged in a U.S. trade or business. 
D)  Foreign persons with only U.S.-source investment income are exempt from U.S. tax. 
A)  Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income. 
B)  Foreign persons with any U.S.-source income are taxed on net investment income (after expenses). 
C)  Foreign persons are not subject to U.S. tax if not engaged in a U.S. trade or business. 
D)  Foreign persons with only U.S.-source investment income are exempt from U.S. tax.

Question 2

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.

Accepted Answer

A) Foreign base company income 
B) Foreign personal holding company income 
C) Controlled foreign corporation 
D) U.S. shareholder 
E) Previously taxed income
F)More than 10 percent
G)More than 50 percent
H)More than 80 percent 
A) Foreign base company income 
B) Foreign personal holding company income 
C) Controlled foreign corporation 
D) U.S. shareholder 
E) Previously taxed income
F)More than 10 percent
G)More than 50 percent
H)More than 80 percent

Question 3

Quest is organized and operates in the U.K. Its U.S. effectively connected earnings for the taxable year are $900,000 and its net U.S. equity has increased by $40,000. Quest's dividend equivalent amount for the tax year is $860,000.

Accepted Answer

A) True 
 B)False

Question 4

Match the definition with the correct term
-A non-U.S. citizen who holds a "green card."

Accepted Answer

A) Expatriate 
B) Resident 
C) Nonresident alien 
D) U.S. trade or business 
E) Branch profits tax
F)Effectively connected income 
A) Expatriate 
B) Resident 
C) Nonresident alien 
D) U.S. trade or business 
E) Branch profits tax
F)Effectively connected income

Question 5

With respect to income generated by non-U.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.

Accepted Answer

U.S. persons are subject to worldwide ta

Question 6

During the current year, USACo (a domestic corporation) sold equipment to FrenchCo, a foreign corporation, for $350,000, with title passing to the buyer in France. USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment, all of which were allocated to U.S.-source income. USACo's adjusted basis in the equipment is $20,000 on the date of sale. What is the source of the $330,000 gain on the sale of this equipment?

Accepted Answer

A)  $330,000 foreign source. 
B)  $330,000 U.S. source. 
C)  $250,000 foreign source and $80,000 U.S. source. 
D)  $250,000 U.S. source and $80,000 foreign source. 
A)  $330,000 foreign source. 
B)  $330,000 U.S. source. 
C)  $250,000 foreign source and $80,000 U.S. source. 
D)  $250,000 U.S. source and $80,000 foreign source.

Question 7

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?

Accepted Answer

A)  100% U.S. source. 
B)  100% foreign source. 
C)  50% U.S. source and 50% foreign source. 
D)  50% foreign source and 50% sourced based on location of manufacturing assets. 
A)  100% U.S. source. 
B)  100% foreign source. 
C)  50% U.S. source and 50% foreign source. 
D)  50% foreign source and 50% sourced based on location of manufacturing assets.

Question 8

Which of the following statements regarding the sourcing of gross income is true?

Accepted Answer

A)  Non-U.S. persons not engaged in a U.S. trade or business are indifferent as to whether any of their income is U.S. source. 
B)  All income earned by non-U.S. persons not engaged in a U.S. trade or business is treated as foreign source. 
C)  U.S.-source income is not subject to withholding so long as such income is not treated as effectively connected with a U.S. trade or business. 
D)  Certain U.S.-source investment income earned by non-U.S. persons not engaged in a U.S. trade or business may be subject to a U.S. withholding tax. 
A)  Non-U.S. persons not engaged in a U.S. trade or business are indifferent as to whether any of their income is U.S. source. 
B)  All income earned by non-U.S. persons not engaged in a U.S. trade or business is treated as foreign source. 
C)  U.S.-source income is not subject to withholding so long as such income is not treated as effectively connected with a U.S. trade or business. 
D)  Certain U.S.-source investment income earned by non-U.S. persons not engaged in a U.S. trade or business may be subject to a U.S. withholding tax.

Question 9

Wellington, Inc., a U.S. corporation, owns 30% of a CFC that has $50 million of earnings and profits for the current year. Included in that amount is $20 million of Subpart F income. Wellington has been a CFC for the entire year and makes no distributions in the current year. Wellington must include in gross income (before any § 78 gross-up):

Accepted Answer

A)  $0. 
B)  $6 million. 
C)  $20 million. 
D)  $50 million. 
A)  $0. 
B)  $6 million. 
C)  $20 million. 
D)  $50 million.

Question 10

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once
-Maximum years for a foreign tax credit carryback.

Accepted Answer

A) Indirect credit 
B) Direct credit 
C) One 
D) Two 
E) Ten
F)Twenty
G)Gross-up (§ 78)
H)Overall foreign loss 
A) Indirect credit 
B) Direct credit 
C) One 
D) Two 
E) Ten
F)Twenty
G)Gross-up (§ 78)
H)Overall foreign loss

Question 11

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once
-A net loss in all foreign tax credit limitation baskets.

Accepted Answer

A) Indirect credit 
B) Direct credit 
C) One 
D) Two 
E) Ten
F)Twenty
G)Gross-up (§ 78)
H)Overall foreign loss 
A) Indirect credit 
B) Direct credit 
C) One 
D) Two 
E) Ten
F)Twenty
G)Gross-up (§ 78)
H)Overall foreign loss

Question 12

Which of the following statements is true, concerning the sourcing of income from inventory produced by the taxpayer in the U.S. and sold outside the U.S.?

Accepted Answer

A)  Because the inventory is manufactured in the U.S., all of the inventory income is U.S. source. 
B)  If title passes on the inventory outside the U.S., all of the inventory income is foreign source. 
C)  The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on where the sale negotiation takes place. 
D)  The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on location of production assets. 
A)  Because the inventory is manufactured in the U.S., all of the inventory income is U.S. source. 
B)  If title passes on the inventory outside the U.S., all of the inventory income is foreign source. 
C)  The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on where the sale negotiation takes place. 
D)  The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on location of production assets.

Question 13

Income tax treaties may provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

Accepted Answer

A) True 
 B)False

Question 14

Match the definition with the correct term
-A country with very low or no income tax.

Accepted Answer

A) Inbound 
B) Outbound 
C) Allocation and apportionment 
D) Qualified business unit 
E) Tax haven
F)Income tax treaty
G)Section 482 
A) Inbound 
B) Outbound 
C) Allocation and apportionment 
D) Qualified business unit 
E) Tax haven
F)Income tax treaty
G)Section 482

Question 15

Dark, Inc., a U.S. corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany. Dark reports $100,000 of taxable income from Dunkel on its U.S. tax return, along with $400,000 of taxable income from its U.S. operations. Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S. tax rate of 35%, what is Dark's U.S. tax liability after any allowable foreign tax credits?

Accepted Answer

A)  $35,000 
B)  $135,000 
C)  $140,000 
D)  $175,000 
A)  $35,000 
B)  $135,000 
C)  $140,000 
D)  $175,000

Question 16

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once
-Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

Accepted Answer

A) Foreign base company income 
B) Foreign personal holding company income 
C) Controlled foreign corporation 
D) U.S. shareholder 
E) Previously taxed income
F)More than 10 percent
G)More than 50 percent
H)More than 80 percent 
A) Foreign base company income 
B) Foreign personal holding company income 
C) Controlled foreign corporation 
D) U.S. shareholder 
E) Previously taxed income
F)More than 10 percent
G)More than 50 percent
H)More than 80 percent

Question 17

SunCo, a U.S. corporation, owns a number of patents related to designing sunglasses. SunCo licenses these patents to unrelated parties. SpainCo, a Spanish corporation, paid SunCo $78,000 in royalties related to these licenses. SpainCo uses the patent information in its manufacturing process in its Texas plant. WiscCo, a domestic corporation, paid SunCo $32,000 in royalties related to the licenses. WiscCo uses the patent information in its manufacturing process in its Germany manufacturing plant. How much U.S.-source royalty income did SunCo earn from these licenses?

Accepted Answer

A)  $0 
B)  $32,000 
C)  $78,000 
D)  $110,000 
A)  $0 
B)  $32,000 
C)  $78,000 
D)  $110,000

Question 18

Wood, a U.S. corporation, owns Holz, a German corporation. Wood receives a dividend (non-Subpart F income) from Holz of 75,000€. The average exchange rate for the year is $1US: 0.6€, and the exchange rate on the date of the dividend distribution is $1US: 0.80€. Wood's exchange gain or loss is:

Accepted Answer

A)  $15,000 loss. 
B)  $15,000 gain. 
C)  $75,000 gain. 
D)  $0. There is no exchange gain or loss on a dividend distribution. 
A)  $15,000 loss. 
B)  $15,000 gain. 
C)  $75,000 gain. 
D)  $0. There is no exchange gain or loss on a dividend distribution.

Question 19

Twenty unrelated U.S. persons equally own all of the stock of Quigley, a foreign corporation. Quigley is a CFC.

Accepted Answer

A) True 
 B)False

Question 20

Jaime received gross foreign-source dividend income of $250,000. Foreign taxes withheld on the dividend were $25,000. Jaime's total U.S. tax liability is $800,000 (the 35% marginal tax rate applies). Jaime's current year FTC is $87,500.

Accepted Answer

A) True 
 B)False

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

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.

Quest is organized and operates in the U.K. Its U.S. effectively connected earnings for the taxable year are $900,000 and its net U.S. equity has increased by $40,000. Quest's dividend equivalent amount for the tax year is $860,000.

Match the definition with the correct term -A non-U.S. citizen who holds a "green card."

With respect to income generated by non-U.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.

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?

Which of the following statements regarding the sourcing of gross income is true?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -Maximum years for a foreign tax credit carryback.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -A net loss in all foreign tax credit limitation baskets.

Which of the following statements is true, concerning the sourcing of income from inventory produced by the taxpayer in the U.S. and sold outside the U.S.?

Income tax treaties may provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

Match the definition with the correct term -A country with very low or no income tax.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

Wood, a U.S. corporation, owns Holz, a German corporation. Wood receives a dividend (non-Subpart F income) from Holz of 75,000€. The average exchange rate for the year is $1US: 0.6€, and the exchange rate on the date of the dividend distribution is $1US: 0.80€. Wood's exchange gain or loss is:

Twenty unrelated U.S. persons equally own all of the stock of Quigley, a foreign corporation. Quigley is a CFC.

Jaime received gross foreign-source dividend income of $250,000. Foreign taxes withheld on the dividend were $25,000. Jaime's total U.S. tax liability is $800,000 (the 35% marginal tax rate applies). Jaime's current year FTC is $87,500.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 9: Taxation of International Transactions

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

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.

Quest is organized and operates in the U.K. Its U.S. effectively connected earnings for the taxable year are $900,000 and its net U.S. equity has increased by $40,000. Quest's dividend equivalent amount for the tax year is $860,000.

Match the definition with the correct term -A non-U.S. citizen who holds a "green card."

With respect to income generated by non-U.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.

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?

Which of the following statements regarding the sourcing of gross income is true?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -Maximum years for a foreign tax credit carryback.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -A net loss in all foreign tax credit limitation baskets.

Which of the following statements is true, concerning the sourcing of income from inventory produced by the taxpayer in the U.S. and sold outside the U.S.?

Income tax treaties may provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

Match the definition with the correct term -A country with very low or no income tax.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

Twenty unrelated U.S. persons equally own all of the stock of Quigley, a foreign corporation. Quigley is a CFC.

Jaime received gross foreign-source dividend income of $250,000. Foreign taxes withheld on the dividend were $25,000. Jaime's total U.S. tax liability is $800,000 (the 35% marginal tax rate applies). Jaime's current year FTC is $87,500.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters