Question 1

Without the foreign tax credit, double taxation would result when:

Accepted Answer

A)  The United States taxes the U.S.-source income of a U.S. resident. 
B)  A foreign country taxes the foreign-source income of a nonresident alien. 
C)  The United States and a foreign country both tax the foreign-source income of a U.S. resident. 
D)  Terms of a tax treaty assign income taxing rights to the United States. 
A)  The United States taxes the U.S.-source income of a U.S. resident. 
B)  A foreign country taxes the foreign-source income of a nonresident alien. 
C)  The United States and a foreign country both tax the foreign-source income of a U.S. resident. 
D)  Terms of a tax treaty assign income taxing rights to the United States.

Question 2

WaterCo, a domestic corporation, purchases inventory for resale from unrelated distributors outside the U.S. It resells this inventory to U.S. customers with title passing inside the United States. What is the sourcing of WaterCo'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 3

Income tax treaties 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 4

Olaf, a citizen of Norway with no trade or business activities in the United States, sells at a gain 200 shares of MicroShift, Inc., a U.S. company. The sale takes place through Olaf's broker in Oslo. How is this gain treated for U.S. tax purposes?

Accepted Answer

A)  It is foreign-source income subject to U.S. taxation. 
B)  It is foreign-source income not subject to U.S. taxation. 
C)  It is U.S.-source income subject to U.S. taxation. 
D)  It is U.S.-source income exempt from U.S. taxation. 
A)  It is foreign-source income subject to U.S. taxation. 
B)  It is foreign-source income not subject to U.S. taxation. 
C)  It is U.S.-source income subject to U.S. taxation. 
D)  It is U.S.-source income exempt from U.S. taxation.

Question 5

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?
$\begin{array}{lrcc}&\text { U.S.-source } & \text { Active Foreign } & \text { Total Gross } \
\text { Year } & \text { Income } & \text { Business Income } & \text { income } \
\text { Year 1 } & \$ 200,000 & \$ 500,000 & \$ 700,000 \
\text { Year 2 } & 50,000 & 950,000 & 1,000,000 \
\text { Year 3 } & \underline{100,000} & 900,000 & 1,000,000\\text { Totals }& \$ 350,000&\$ 2,350,000 & \$ 2,700,000\\text { Year } 4 & \$ 150,000 & \$ 950,000 & \$ 1,100,000
\end{array}$

Accepted Answer

Talmadge meets the 80% active foreign bu

Question 6

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 7

Mitch, an NRA, sells a building in Omaha for $1 million. His basis in the building is zero for both regular tax and AMT purposes. Mitch has no other contact with the United States other than the ownership of the building. How much Federal income tax is due from Mitch on the sale?

Accepted Answer

A)  $0, because Mitch is an NRA. 
B)  The amount realized times the top individual tax rate. 
C)  The net gain times the top capital gains tax rate. 
D)  The net gain taxed at the lesser of the applicable regular or AMT rates. 
A)  $0, because Mitch is an NRA. 
B)  The amount realized times the top individual tax rate. 
C)  The net gain times the top capital gains tax rate. 
D)  The net gain taxed at the lesser of the applicable regular or AMT rates.

Question 8

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 9

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 10

Jokerz, a CFC of a U.S. parent, generated $80,000 Subpart F foreign base company services income in its first year of operations. The next year, Jokerz distributes $50,000 cash to the parent, from those service profits. The parent is taxed on $0 in the first year tax deferral rules apply) and $50,000 in the second year.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is false in regard to the U.S. income tax treaty program?

Accepted Answer

A)  There are about 70 bilateral income tax treaties between the United States and other countries. 
B)  Tax treaties generally provide for primary taxing rights that require the other treaty partner to allow a credit for the taxes paid on the twice-taxed income. 
C)  U.S. income tax treaties are written to set up a "network" of up to five foreign countries that are covered by the treaty language. 
D)  None of these statements is false. 
A)  There are about 70 bilateral income tax treaties between the United States and other countries. 
B)  Tax treaties generally provide for primary taxing rights that require the other treaty partner to allow a credit for the taxes paid on the twice-taxed income. 
C)  U.S. income tax treaties are written to set up a "network" of up to five foreign countries that are covered by the treaty language. 
D)  None of these statements is false.

Question 12

Purchase of inventory from a U.S. parent followed by which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia?

Accepted Answer

A)  Sale to anyone outside Fredonia. 
B)  Sale to anyone inside Fredonia. 
C)  Sale to a related party outside Fredonia. 
D)  Sale to a nonrelated party outside Fredonia. 
A)  Sale to anyone outside Fredonia. 
B)  Sale to anyone inside Fredonia. 
C)  Sale to a related party outside Fredonia. 
D)  Sale to a nonrelated party outside Fredonia.

Question 13

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 14

Which of the following is not a U.S. person?

Accepted Answer

A)  Domestic corporation. 
B)  Citizen of Turkey with U.S. permanent residence status i.e., green card). 
C)  U.S. corporation 100% owned by a foreign corporation. 
D)  Foreign corporation 100% owned by a domestic corporation. 
A)  Domestic corporation. 
B)  Citizen of Turkey with U.S. permanent residence status i.e., green card). 
C)  U.S. corporation 100% owned by a foreign corporation. 
D)  Foreign corporation 100% owned by a domestic corporation.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

Accepted Answer

A) True 
 B)False

Question 17

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 18

OutCo, a controlled foreign corporation in Meena located outside the United States), 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 19

GlobalCo, a foreign corporation not engaged in a U.S. trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 24% of its income from foreign sources. How much of GlobalCo's interest income is U.S. source?

Accepted Answer

A)  $0 
B)  $19,200 
C)  $60,800 
D)  $80,000 
A)  $0 
B)  $19,200 
C)  $60,800 
D)  $80,000

Question 20

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

Without the foreign tax credit, double taxation would result when:

WaterCo, a domestic corporation, purchases inventory for resale from unrelated distributors outside the U.S. It resells this inventory to U.S. customers with title passing inside the United States. What is the sourcing of WaterCo's inventory sales income?

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

Olaf, a citizen of Norway with no trade or business activities in the United States, sells at a gain 200 shares of MicroShift, Inc., a U.S. company. The sale takes place through Olaf's broker in Oslo. How is this gain treated for U.S. tax purposes?

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?

Mitch, an NRA, sells a building in Omaha for $1 million. His basis in the building is zero for both regular tax and AMT purposes. Mitch has no other contact with the United States other than the ownership of the building. How much Federal income tax is due from Mitch on the sale?

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:

Which of the following statements is false in regard to the U.S. income tax treaty program?

Purchase of inventory from a U.S. parent followed by which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia?

Which of the following is not a U.S. person?

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

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

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

OutCo, a controlled foreign corporation in Meena located outside the United States), 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:

GlobalCo, a foreign corporation not engaged in a U.S. trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 24% of its income from foreign sources. How much of GlobalCo's interest income is 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 non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Partnerships: Formation, Operations, 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

Without the foreign tax credit, double taxation would result when:

WaterCo, a domestic corporation, purchases inventory for resale from unrelated distributors outside the U.S. It resells this inventory to U.S. customers with title passing inside the United States. What is the sourcing of WaterCo's inventory sales income?

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

Olaf, a citizen of Norway with no trade or business activities in the United States, sells at a gain 200 shares of MicroShift, Inc., a U.S. company. The sale takes place through Olaf's broker in Oslo. How is this gain treated for U.S. tax purposes?

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?

Mitch, an NRA, sells a building in Omaha for $1 million. His basis in the building is zero for both regular tax and AMT purposes. Mitch has no other contact with the United States other than the ownership of the building. How much Federal income tax is due from Mitch on the sale?

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:

Which of the following statements is false in regard to the U.S. income tax treaty program?

Purchase of inventory from a U.S. parent followed by which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia?

Which of the following is not a U.S. person?

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

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

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

OutCo, a controlled foreign corporation in Meena located outside the United States), 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:

GlobalCo, a foreign corporation not engaged in a U.S. trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 24% of its income from foreign sources. How much of GlobalCo's interest income is 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 non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Partnerships: Formation, Operations, 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