Exam 13: Jurisdictional Issues in Business Taxation

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

Which of the following statements about the foreign tax credit is true?

A controlled foreign corporation is a foreign corporation in which U.S. shareholders own more than 50% of the voting power or stock value.

Koscil Inc. had the following taxable income. Corporate tax rate schedule. U.S. source income $\quad$$\quad$$\quad$ $ 1,435,000 Foreign source income $\quad$$\quad$$\quad$ 850,000 Taxable income $\quad$$\quad$$\quad$$\quad$ $ 2,285,000 Koscil paid $315,000 foreign income tax. Compute its U.S. income tax liability.

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?

Which of the following statements about the foreign tax credit limitation is false?

Pogo, Inc., which has a 34 percent marginal tax rate, owns 50 percent of the stock of a CFC. At the beginning of the year, Pogo's basis in the CFC stock was $2 million. The CFC's current year earnings were $750,000 of which $600,000 was subpart F income and zero was global intangible low-taxed income. The CFC paid no foreign income tax and distributed no dividends. a. Explain Pogo's U.S. tax consequences with respect to its investment in the CFC. b. Compute Pogo's basis in its CFC stock at the end of the year.

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?

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.

The United States has jurisdiction to tax income earned by any foreign corporation that is a controlled subsidiary of a U.S. parent corporation.

Which of the following would qualify as a permanent establishment for income tax treaty purposes?

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.

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 subpart F income?

Which of the following statements about organizational forms for conducting foreign operations is false?

Mega, Inc., a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Corporate tax rate schedule U.S. source income $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 760,000 Foreign source income-Country M $\quad$$\quad$$\quad$ 80,000 Total $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 840,000 Mega paid $15,000 income tax to Country M. Mega has a $25,000 foreign tax credit carryforward. What is Mega's U.S. tax liability if it takes the foreign tax credit?

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

Which of the following statements concerning the nexus required for a state to tax income is false?

Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows. Corporate tax rate schedule. U.S. source income $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 700,000 Foreign source income-Country X $\quad$$\quad$ 100,000 Total $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 800,000 Global paid $15,000 income tax to Country X. What is Global's U.S. tax liability if it takes the foreign tax credit?

Harris Corporation's before-tax income was $400,000. It does business entirely in Pennsylvania, which has a 6% corporate income tax. Compute Harris' federal income tax.

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.