Exam 13: Jurisdictional Issues in Business Taxation

Kraze, Inc., a calendar year domestic corporation, owns 50 percent of the stock of Malik, a calendar year specified foreign corporation. Prior to 2018, Malik has accumulated deferred foreign earnings of $40 million and an aggregate foreign cash position of $5.1 million. Assume Malik paid zero foreign tax on its earnings.Calculate Kraze's mandatory inclusion amount for Malik's deferred foreign earnings and its pro rata share of Malik's foreign cash position.Calculate Kraze's incremental tax liability on its mandatory inclusion amount.Determine Kraze's installment payments of the tax liability on its mandatory inclusion amount. Assume such payments begin in 2017.

The sales factor in the UDITPA state income tax apportionment formula equals in-state sales divided by total sales.

The foreign subsidiaries of a U.S. corporation cannot be included in a U.S. consolidated tax return.

A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.

Foreign value-added taxes and excise taxes are eligible for the U.S. foreign tax credit.

A U.S. parent corporation that receives a dividend from a wholly-owned foreign subsidiary that pays a 45% income tax to its home country typically does not owe any U.S. tax on the dividend.

Orchid Inc., a U.S. multinational with a 21% marginal tax rate, owns a foreign subsidiary operating in a country with a 15% income tax. This year, the subsidiary generated $400,000 taxable income. What is the total tax burden (domestic and foreign) on the earnings of the foreign subsidiary if it does not repatriate its after-tax earnings and has no global intangible low-taxed income or subpart F income?

BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.

Which of the following statements regarding Internal Revenue Code Section 482 is false?

The UDITPA formula for state income tax apportionment consists of three factors: sales, payroll, and profit.

The United States taxes its citizens on their worldwide incomes.

Which of the following taxes is eligible for the foreign tax credit?

The income earned by a foreign branch operation of a U.S. corporation is taxable by the United States only when repatriated.

Lexington Corporation conducts business in four states. In state A, its sales factor is 50%, its payroll factor is 14%, and its property factor is 29%. State A uses an equally-weighted three-factor apportionment formula, but plans to change to a formula that double-weight the sales factor. Which is of the following statements is true?

Albany, Inc. does business in states C and D. State C uses an apportionment formula that double-weights the sales factor; state D 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.

All states assessing an income tax use the same formula for apportionment purposes.

Which of the following entities is not subject to U.S. federal income tax?

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

This year, Sutton Corporation's before-tax income was $2,000,000. It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa. Compute Sutton's federal income tax.

Wilmington, Inc., a Pennsylvania corporation, manufactures computer components that it sells to Seine Corporation, a French company, for assembly into finished products. Wilmington owns 90% of Seine's stock. Wilmington's cost per component is $5, its selling price per component is $16, and it sold 110,000 components to Seine this year. Wilmington's taxable income as reported on its Form 1120 was $2,400,000, and Seine's taxable income as reported on its French corporate income tax return was $1,750,000. Determine the effect on the taxable incomes of both corporations if the IRS determines that an arm's length transfer price per component is $23.