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.
-Activity that creates the potential for effectively connected income.

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 3

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-Portfolio income treated as Subpart F income.

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 4

Which of the following statements regarding the taxation of U.S. real property gains recognized by non-U.S. persons not engaged in a U.S. trade or business is false? Gains from the disposition of U.S. real property are:

Accepted Answer

A) Not taxed to non-U.S. persons because real property gains are specifically exempt from U.S. taxation. 
B) Taxed to non-U.S. persons without regard to whether such non-U.S. persons are engaged in a U.S. trade or business. 
C) Taxed in the U.S. because such gains are treated as if they are effectively connected to a U.S. trade or business. 
D) Taxed to non-U.S. persons notwithstanding the general exemption of capital gains from U.S. taxation. 
A) Not taxed to non-U.S. persons because real property gains are specifically exempt from U.S. taxation. 
B) Taxed to non-U.S. persons without regard to whether such non-U.S. persons are engaged in a U.S. trade or business. 
C) Taxed in the U.S. because such gains are treated as if they are effectively connected to a U.S. trade or business. 
D) Taxed to non-U.S. persons notwithstanding the general exemption of capital gains from U.S. taxation.

Question 5

Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia's foreign tax credit related to the Starke dividend?

Accepted Answer

A) $22,500 
B) $56,250 
C) $150,000 
D) $750,000 
A) $22,500 
B) $56,250 
C) $150,000 
D) $750,000

Question 6

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.-source?

Accepted Answer

A) $0 
B) $10,500 
C) $39,500 
D) $50,000 
A) $0 
B) $10,500 
C) $39,500 
D) $50,000

Question 7

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

Accepted Answer

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

Question 8

RainCo, a U.S. 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 U.S.-source royalty income did RainCo earn from these licenses?

Accepted Answer

A) $0 
B) $25,000 
C) $100,000 
D) $125,000 
A) $0 
B) $25,000 
C) $100,000 
D) $125,000

Question 9

Britta, Inc., a U.S. corporation, reports foreign-source income and pays foreign taxes as follows. $$\begin{array} { l r r } 
& \text { Income } & \text { Taxes } \
\text { Passive category } & \$ 200,000 & \$ 10,000 \
\text { General limitati on category } & 800,000 & 350,000
\end{array}$$ Britta's worldwide taxable income is $1,600,000 and U.S. taxes before FTC are $560,000 (assume a 35% tax rate). What is Britta's U.S. tax liability after the FTC?

Accepted Answer

The answer of Britta, Inc., a U.S. corporation, reports foreign-source...

Question 10

The § 367 cross-border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income, e.g. §§ 351 and 368. What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.

Accepted Answer

Section 367 provides for the immediate t

Question 11

Unused foreign tax credits are carried back two years and then forward 20 years.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.

Accepted Answer

A) True 
 B)False

Question 14

Match the definition with the correct term.
-Bilateral agreement between two countries related to tax issues.

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

When a business taxpayer "goes international," the first step usually is to create an overseas branch sales office.

Accepted Answer

A) True 
 B)False

Question 16

Serena, a nonresident alien, is employed by GlobalCo, a non-U.S. corporation. Serena works in the United States for 3 days during the year, receiving a gross salary of $2,500 for this period. GlobalCo is not engaged in a U.S. trade or business. Under the "commercial traveler" exception, the $2,500 is not classified as U.S.-source income.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Dividends received from a domestic corporation are totally U.S. source:

Accepted Answer

A) If the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business. 
B) If the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business. 
C) Unless the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business. 
D) Unless the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business. 
E) In all of the above cases. 
A) If the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business. 
B) If the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business. 
C) Unless the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business. 
D) Unless the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business. 
E) In all of the above cases.

Question 19

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-A deemed paid foreign tax credit is included in gross income.

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 20

ForCo, a foreign corporation not engaged in a U.S. trade or business, recognizes a $3 million gain from the sale of land located in the United States. The amount realized on the sale was $50 million. Absent any exceptions, what is the required withholding amount on the part of the purchaser of this land?

Accepted Answer

A) $0 
B) $300,000 
C) $3 million 
D) $5 million 
A) $0 
B) $300,000 
C) $3 million 
D) $5 million

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. -Activity that creates the potential for effectively connected income.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Portfolio income treated as Subpart F income.

Which of the following statements regarding the taxation of U.S. real property gains recognized by non-U.S. persons not engaged in a U.S. trade or business is false? Gains from the disposition of U.S. real property are:

Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia's foreign tax credit related to the Starke dividend?

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.-source?

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

The § 367 cross-border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income, e.g. §§ 351 and 368. What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.

Unused foreign tax credits are carried back two years and then forward 20 years.

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.

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.

Match the definition with the correct term. -Bilateral agreement between two countries related to tax issues.

When a business taxpayer "goes international," the first step usually is to create an overseas branch sales office.

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.

Dividends received from a domestic corporation are totally U.S. source:

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A deemed paid foreign tax credit is included in gross income.

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

Multi-State Corporate Taxations

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. -Activity that creates the potential for effectively connected income.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Portfolio income treated as Subpart F income.

Which of the following statements regarding the taxation of U.S. real property gains recognized by non-U.S. persons not engaged in a U.S. trade or business is false? Gains from the disposition of U.S. real property are:

Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia's foreign tax credit related to the Starke dividend?

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.-source?

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

The § 367 cross-border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income, e.g. §§ 351 and 368. What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.

Unused foreign tax credits are carried back two years and then forward 20 years.

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.

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.

Match the definition with the correct term. -Bilateral agreement between two countries related to tax issues.

When a business taxpayer "goes international," the first step usually is to create an overseas branch sales office.

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.

Dividends received from a domestic corporation are totally U.S. source:

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A deemed paid foreign tax credit is included in gross income.

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

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters