Question 1

A controlled foreign corporation (CFC) realizes Subpart F income from:

Accepted Answer

A)  Purchase of inventory from an unrelated U.S. person and sale outside the CFC country. 
B)  Purchase of inventory from a related U.S. person and sale outside the CFC country. 
C)  Services performed for the U.S. parent in a country in which the CFC was organized. 
D)  Services performed on behalf of an unrelated party in a country outside the country in which the CFC was organized. 
A)  Purchase of inventory from an unrelated U.S. person and sale outside the CFC country. 
B)  Purchase of inventory from a related U.S. person and sale outside the CFC country. 
C)  Services performed for the U.S. parent in a country in which the CFC was organized. 
D)  Services performed on behalf of an unrelated party in a country outside the country in which the CFC was organized.

Question 2

Flapp Corporation, a U.S. corporation, conducts all of its transactions in the U.S. dollar. It sells inventory for $1 million to a Canadian company when the exchange rate is $1US: $1.2Can. The Canadian company pays for the inventory when the exchange rate is $1US: $1.3Can. What is Flapp's exchange gain or loss on this sale?

Accepted Answer

A)  Flapp does not have a foreign currency exchange gain or loss, since it conducts all of its transactions in the U.S. dollar. 
B)  Flapp's account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can.) and it collects on the receivable when the exchange rate is $1US: $1.3Can. Flapp has an exchange gain of $100,000. 
C)  Flapp's account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can.). It collects on the receivable at $1US: $1.3Can. Flapp has an exchange loss of $10,000. 
D)  Flapp's foreign currency exchange loss is $100,000. 
A)  Flapp does not have a foreign currency exchange gain or loss, since it conducts all of its transactions in the U.S. dollar. 
B)  Flapp's account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can.) and it collects on the receivable when the exchange rate is $1US: $1.3Can. Flapp has an exchange gain of $100,000. 
C)  Flapp's account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can.). It collects on the receivable at $1US: $1.3Can. Flapp has an exchange loss of $10,000. 
D)  Flapp's foreign currency exchange loss is $100,000.

Question 3

Peanut, Inc., a U.S. corporation, receives $500,000 of foreign-source interest income on which foreign taxes of $5,000 are withheld. Peanut's worldwide taxable income is $900,000, and its U.S. Federal income tax liability before
FTC is $189,000. What is Peanut's foreign tax credit?

Accepted Answer

A)  $500,000 
B)  $189,000 
C)  $105,000 
D)  $5,000 
A)  $500,000 
B)  $189,000 
C)  $105,000 
D)  $5,000

Question 4

Carol, a citizen and resident of Adagio, reports gross income that is effectively connected with a U.S. business. No deductions are allowed against this income, and Carol's U.S. tax rate is a flat 30%.

Accepted Answer

A) True 
 B)False

Question 5

Serena, a nonresident alien, is employed by GlobalCo, a non-U.S. corporation. She works in the United States for three 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 6

Liang, an NRA, is sent to the United States by Fulston Corporation, her non-U.S. employer. She spends 50 days in the United States and earns $20,000 for a two-month period. This amount is attributable to 40 U.S. working days and
10 non-U.S. working days. Fulston does not have a United States trade or business, and Liang spends no other time in the United States for the tax year. Liang's U.S.-source taxable income is:

Accepted Answer

A)  $20,000. 
B)  $16,000. 
C)  $3,000. 
D)  $0. 
A)  $20,000. 
B)  $16,000. 
C)  $3,000. 
D)  $0.

Question 7

Luisa, a non-U.S. person with a green card, spends the following days in the United States. Year $1 \quad 360$ days
Year $2 \quad 210$ days
Year $3 \quad 30$ days Luisa's residency status for year 3 is:

Accepted Answer

A)  U.S. resident because she has a green card. 
B)  U.S. resident since she was a U.S. resident for the past immediately preceding two years. 
C)  Not a U.S. resident because Luisa was not in the United states for more than 30 days during year 3. 
D)  Not a U.S. resident since, using the three-year test, Luisa is not present in the United States for at least 183 days. 
A)  U.S. resident because she has a green card. 
B)  U.S. resident since she was a U.S. resident for the past immediately preceding two years. 
C)  Not a U.S. resident because Luisa was not in the United states for more than 30 days during year 3. 
D)  Not a U.S. resident since, using the three-year test, Luisa is not present in the United States for at least 183 days.

Question 8

In which of the following independent situations would Slane, a foreign corporation, be classified as a controlled foreign corporation? The Slane stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.

Accepted Answer

A)  Jen, Kathy, Leslie, David, Ben, and Mike are all U.S. citizens. 
B)  Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. David is married to Kathy. Mike is a foreign resident and citizen. 
C)  Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. Ben is Mike's son. Mike is a foreign resident and citizen. 
D)  Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. Mike is a foreign resident and citizen. 
A)  Jen, Kathy, Leslie, David, Ben, and Mike are all U.S. citizens. 
B)  Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. David is married to Kathy. Mike is a foreign resident and citizen. 
C)  Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. Ben is Mike's son. Mike is a foreign resident and citizen. 
D)  Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. Mike is a foreign resident and citizen.

Question 9

Which of the following statements regarding the U.S. taxation of non-U.S. persons is true?

Accepted Answer

A)  A non-U.S. person's effectively connected U.S. business income is taxed by the United States only if it is portfolio income. 
B)  A non-U.S. person's effectively connected U.S. business income is subject to U.S. income taxation. 
C)  A non-U.S. person may earn income from selling U.S. real property without incurring any U.S. income tax. 
D)  A non-U.S. person must spend at least 183 days in the United States before any effectively connected income is subject to U.S. taxation. 
A)  A non-U.S. person's effectively connected U.S. business income is taxed by the United States only if it is portfolio income. 
B)  A non-U.S. person's effectively connected U.S. business income is subject to U.S. income taxation. 
C)  A non-U.S. person may earn income from selling U.S. real property without incurring any U.S. income tax. 
D)  A non-U.S. person must spend at least 183 days in the United States before any effectively connected income is subject to U.S. taxation.

Question 10

U.S. income tax treaties:

Accepted Answer

A)  Involve three to seven countries as treaty partners. 
B)  Are renewable upon expiration every five years. 
C)  Are rare with countries in Africa. 
D)  Are rare with countries in Europe. 
A)  Involve three to seven countries as treaty partners. 
B)  Are renewable upon expiration every five years. 
C)  Are rare with countries in Africa. 
D)  Are rare with countries in Europe.

Question 11

WorldCo, a foreign corporation not engaged in a U.S. trade or business, receives $50,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 78% of its income from foreign sources. How much of WorldCo's interest income is U.S. source?

Accepted Answer

A)  $0 
B)  $11,000 
C)  $39,000 
D)  $50,000 
A)  $0 
B)  $11,000 
C)  $39,000 
D)  $50,000

Question 12

Zhang, an NRA who is not a resident of a treaty country, receives taxable dividends of $50,000 from U.S. corporations. Zhang does not conduct a U.S. trade or business. Zhang's dividends are subject to withholding by the payor of:

Accepted Answer

A)  35%. 
B)  30%. 
C)  15%. 
D)  0%. 
A)  35%. 
B)  30%. 
C)  15%. 
D)  0%.

Question 13

Match the definition with the correct term.
-Income of foreign person taxed through filing of a U.S. tax return with deductions allowed against gross income.

Accepted Answer

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

Question 14

A U.S. taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect) paid or accrued.

Accepted Answer

A) True 
 B)False

Question 15

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 16

During the current year, USACo (a domestic corporation) sold equipment to FrenchCo, a non-U.S. 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 sourcing 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 17

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

Question 18

Match the definition with the correct term.
-A business operation that accounts for profits and losses using its functional currency.

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 19

The IRS can use § 482 reallocations to ensure that transactions between related parties are properly reflected in a tax return.

Accepted Answer

A) True 
 B)False

Question 20

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha. The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien. Julio recognizes foreign-source income from the sale because his home country is not the United States.

Accepted Answer

A) True 
 B)False

Exam 25: Taxation of International Transactions

A controlled foreign corporation (CFC) realizes Subpart F income from:

Peanut, Inc., a U.S. corporation, receives $500,000 of foreign-source interest income on which foreign taxes of $5,000 are withheld. Peanut's worldwide taxable income is $900,000, and its U.S. Federal income tax liability before FTC is $189,000. What is Peanut's foreign tax credit?

Carol, a citizen and resident of Adagio, reports gross income that is effectively connected with a U.S. business. No deductions are allowed against this income, and Carol's U.S. tax rate is a flat 30%.

Luisa, a non-U.S. person with a green card, spends the following days in the United States. Year 13601 \quad 3601360 days Year 22102 \quad 2102210 days Year 3303 \quad 30330 days Luisa's residency status for year 3 is:

In which of the following independent situations would Slane, a foreign corporation, be classified as a controlled foreign corporation? The Slane stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.

Which of the following statements regarding the U.S. taxation of non-U.S. persons is true?

U.S. income tax treaties:

WorldCo, a foreign corporation not engaged in a U.S. trade or business, receives $50,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 78% of its income from foreign sources. How much of WorldCo's interest income is U.S. source?

Zhang, an NRA who is not a resident of a treaty country, receives taxable dividends of $50,000 from U.S. corporations. Zhang does not conduct a U.S. trade or business. Zhang's dividends are subject to withholding by the payor of:

Match the definition with the correct term. -Income of foreign person taxed through filing of a U.S. tax return with deductions allowed against gross income.

A U.S. taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect) paid or accrued.

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.

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

Match the definition with the correct term. -A business operation that accounts for profits and losses using its functional currency.

The IRS can use § 482 reallocations to ensure that transactions between related parties are properly reflected in a tax return.

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha. The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien. Julio recognizes foreign-source income from the sale because his home country is not the United States.

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

Luisa, a non-U.S. person with a green card, spends the following days in the United States. Year $1 \quad 360$ days Year $2 \quad 210$ days Year $3 \quad 30$ days Luisa's residency status for year 3 is: