Exam 13: Jurisdictional Issues in Business Taxation

The foreign tax credit is available for both income and property taxes paid to a foreign jurisdiction.

Southern, an Alabama corporation, has a $7 million excess FTC carryforward attributable to its foreign branch manufacturing operations. Which of the following strategies should increase Southern's use of its FTC carryforward to reduce U.S. tax?

International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.

If a U.S. multinational corporation incurs start-up losses from foreign operations, which of the following organizational forms provide immediate U.S. tax savings from the deduction of the losses?

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows: U.S. source income \1 ,000,000 Foreign source income-Country A 500,000 Total \1 ,500,000 Fleming paid $50,000 income tax to Country A. Assume Fleming's foreign source income does not qualify as foreign-derived intangible income. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

DFJ, a Missouri corporation, owns 55% of Duvall, a foreign corporation formed under Krunian law. Krunia is a central European country with a 22% corporate income tax and no income tax treaty with the United States. Last year, DFJ leased equipment to Duvall for a $415,000 annual rent payment. DFJ reported the rent as taxable income, while Duvall deducted it in the computation of taxable income. This year, the IRS determined that an arm's length rent for the equipment should be $600,000. The IRS can use its Section 482 authority to:

Transfer pricing issues arise:

Macon, Inc., a U.S. corporation, owns stock in four corporations operating overseas. Which of the following will qualify for the 100% dividends-received deduction?

Which of the following activities create state income tax nexus?

A U.S. taxpayer can make an annual election to take a credit or a deduction for foreign income taxes paid.

The foreign tax credit is available only for foreign income, excise, value-added, sales, property and transfer taxes.

Which of the following statements about the Uniform Division of Income for Tax Purposes Act (UDITPA) is false?

Chester, Inc., a U.S. multinational, earned $4 million this year from both domestic and international operations. Of this amount, $1.3 million qualifies as foreign-derived intangible income (FDII). If Chester pays no foreign income tax, compute its U.S. income tax liability.

For dividends received prior to 2018, the deemed paid foreign tax credit treats a U.S. corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

Lincoln Corporation, a U.S. corporation, owns 50% of the stock of a controlled foreign corporation (CFC). At the beginning of the year, Lincoln's basis in its CFC stock was $100,000. The CFC's current year income was $1 million, $600,000 of which was subpart F income. The CFC has no global intangible low-taxed income, paid no foreign income tax and distributed no dividends. What is Lincoln's tax basis in its CFC stock at the end of the taxable year?

Verdi Inc. has before-tax income of $500,000. Verdi operates entirely in state Q, which has a 10% corporate income tax. Compute Verdi's combined federal and state tax burden as a percentage of its before-tax income.

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

Albany, Inc. does business in states C and D. State D uses an apportionment formula that double-weights the sales factor; state C apportions income using an equally-weighted three-factor formula. Albany's before tax income is $3,000,000, and its sales, payroll, and property factors are as follows. C D Sales factor 50\% 50\% Payroll factor 40\% 60\% Property factor 10\% 80\% Calculate Albany's income taxable in each state.

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S. rate.

Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows: U. S. source income \7 00,000 Foreign source income-Country X 100,000 Total \8 00,000 Global paid $15,000 income tax to Country X. Assume Global's foreign source income does not qualify as foreign-derived intangible income. What is Global's U.S. tax liability if it takes the foreign tax credit?