Exam 13: Jurisdictional Issues in Business Taxation

The foreign tax credit is available for income taxes paid to a foreign country.

Tradewinds is a Bermuda corporation that is 100% owned by Larkin, a U.S. corporation. Which of the following transactions generates subpart F income for U.S. tax purposes?

Crane, Inc. is a domestic corporation with several foreign subsidiaries. This year, Crane has $2.3 million domestic gross receipts and $900,000 allowable deductions. It made deductible related party payments to its foreign affiliates of $650,000. Compute Crane's base erosion and anti-abuse tax liability (BEAT).

Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

Mega, Inc., a U.S. multinational, has pretax U.S. source income and foreign source income as follows: U. S. source income \7 60,000 Foreign source income-Country M 80,000 Total \8 40,000 Mega paid $15,000 income tax to Country M. Assume Mega's foreign source income does not qualify as foreign-derived intangible income. Mega has a $25,000 foreign tax credit carryforward. What is Mega's U.S. tax liability if it takes the foreign tax credit?

Cambridge, Inc. conducts business in states X and Y. This year, its before-tax income was $150,000. Below is information regarding its sales, payroll, and property factors in both states. X Y TotaL Gross receipts/sales \ 325,000 \ 75,000 \ 400,000 Payroll 90,000 10,000 100,000 Property 200,000 50,000 250,000 Both states apply an equally-weighted three-factor formula to apportion income. State X has a 10% corporate income tax and state Y has a 5% corporate income tax. Compute the state tax savings if Cambridge could relocate $100,000 of property and $50,000 of payroll from state X to state Y.

According to Public Law 86-272, the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.

Cheney is a controlled foreign corporation with total foreign earnings of $4 million, of which $1.3 million is considered subpart F income. Cheney owns tangible business property with an adjusted tax basis of $6 million. Compute Cheney's global intangible low-taxed income.

Stockholm Imports Inc., a U.S. multinational, received a $500,000 dividend from its foreign subsidiary in 2016. The subsidiary paid $112,000 foreign income tax with respect to this dividend. Stockholm's U.S. tax rate in 2016 was 34%. If Stockholm had no other foreign source income, compute its deemed paid foreign tax credit.

A corporation is usually subject to tax by any state in which it engages in any business transactions.

Which of the following statements regarding controlled foreign corporations is true?

Supplies, Inc. does business in Georgia (6% tax rate) and Alabama (5% tax rate). All other factors being equal, the company will reduce state taxes if it increases the compensation paid to its employees in Alabama. Assume apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).

Which of the following could result in a corporation having more than 100% of its income subject to state taxation?

In determining the portion of a firm's total income subject to a state's income tax, most states use an apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

Under most tax treaties, income attributable to a permanent establishment through which a foreign taxpayer conducts business can be taxed only by the taxpayer's country of residence.

Which of the following statements about subpart F income is false?

Luttrix Inc. does business in Nebraska (6% tax rate) and Colorado (3% tax rate). All other factors being equal, Luttrix will reduce state taxes if it constructs a new manufacturing plant in Colorado. Assume apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).

A foreign source dividend received by a U.S. corporation after 2017 is eligible for the 50% dividends-received deduction.