Exam 13: Jurisdictional Issues in Business Taxation

Multi-State, Inc. does business in two states. Its apportionment percentage in state A is 63%. Its apportionment percentage in the other state can be no more than 37%.

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:

If a corporation with a 21% marginal federal income tax rate pays $20,000 state income tax, the after-tax cost of the state tax is $15,800.

The federal income tax deduction allowed for state income taxes paid decreases the cost of the state taxes.

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 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?

For dividends received prior to 2018, the deemed paid foreign tax credit was available only to U.S. corporations that own 30% or more of the voting stock of a foreign corporation that paid dividends during the taxable year.

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.

Pennworth Corporation operates in the United States and foreign country M. Its domestic subsidiary Delco, Inc. operates in foreign country N. This year, the two corporations report the following. Corporate tax rate schedule If Pennworth and Delco file a consolidated U.S. tax return, compute consolidated income tax liability.

Tri-State's, Inc. operates in Arkansas, Oklahoma, and Kansas. Assume that each state has adopted the UDITPA formula. During the corporation's tax year ended December 31, the apportionment data indicated: -Tri-State's income for the current year is $250,000. Approximately how much will be taxed by Kansas?

Which of the following statements about income tax treaties is false?