Exam 25: Taxation of International Transactions

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

During year 4, Josita, an NRA, receives interest income of $50,000 from Talmadge, Inc., an unrelated U.S. corporation. Considering the following facts related to Talmadge's operations, what is the sourcing of the interest income received by Josita? U.S.-source Active Foreign Total Gross Year Income Business Income Income Year 1 \ 200,000 \ 500,000 \ 700,000 Year 2 50,000 \ 50,000 1,000,000 Year 3 900,000 Totals Year 4 \ 150,000 \ 950,000 \ 1,100,000

Match the definition with the correct term. -An individual who gives up U.S. citizenship to avoid U.S. income taxes.

The United States has in force income tax treaties with about 70 countries.

A qualified business unit of a U.S. corporation that operates in Germany generally uses the Euro as its functional currency.

Your client holds foreign tax credit (FTC) carryforwards (i.e., it is in an "excess credit" position.) Give at least three planning ideas that the client should implement to free up the suspended FTCs.

ForCo, a foreign corporation, receives interest income of $100,000 from USCo, an unrelated domestic corporation. USCo has historically earned 85% of its income from foreign sources. What amount of ForCo's interest income is U.S. source?

In year 1, George renounces his U.S. citizenship and moves to Fredonia, where income tax rates are very low. George is a multimillionaire and says he "has had it" with high Federal income taxes on wealthy individuals like himself. In year 4, George's U.S.-source income is $1.5 million. That income escapes Federal income taxes.

U.S. income tax treaties typically:

Match the definition with the correct term. -U.S. taxpayers earning income outside the United States.

USCo, a U.S. corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld. Its worldwide taxable income is $1,500,000, and its U.S. tax liability before the foreign tax credit is $315,000. What is USCo's allowed foreign tax credit?

ForCo, a subsidiary of a U.S. corporation incorporated in Belgium, manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany. The income from the sale of widgets is not Subpart F foreign base company sales income.

The transfer of the assets of a U.S. corporation's foreign branch to a newly formed foreign corporation is always tax deferred under § 351.

A "U.S. shareholder" for purposes of CFC classification is any U.S. person who owns directly, indirectly, and constructively at least 50% of the voting power of a foreign corporation.

Magdala is a citizen of Italy and does not have permanent resident status in the United States. During the last three years, she has spent a number of days in the United States: Current year - 120 days First prior year - 150 days Second prior year - 150 days Is Magdala treated as a U.S. resident for the current year?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

USCo, a U.S. corporation, reports worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly owned foreign corporation. ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings. What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

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

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

Which of the following is a principle used in applying the income-sourcing rules under U.S. tax law?