Question 1

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

Accepted Answer

A) Section 482 applies if related corporations charge each other arms-length transfer prices. 
B) Section 482 is designed to prevent shifting of income from a high tax rate member of a related group to a low tax rate member. 
C) The prevailing attitude of the courts is that the IRS's determination of transfer price should be upheld unless the taxpayer can show that the IRS was arbitrary or capricious. 
D) Section 482 can be used to override artificial transfer prices established between related parties. 
A) Section 482 applies if related corporations charge each other arms-length transfer prices. 
B) Section 482 is designed to prevent shifting of income from a high tax rate member of a related group to a low tax rate member. 
C) The prevailing attitude of the courts is that the IRS's determination of transfer price should be upheld unless the taxpayer can show that the IRS was arbitrary or capricious. 
D) Section 482 can be used to override artificial transfer prices established between related parties.

Question 2

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:     Which of the following statements is true?

Accepted Answer

A) The sales factor for Arkansas is approximately 35%. 
B) Arkansas payroll percentage is approximately 11.1%. 
C) The property factor for Arkansas is approximately 7.14%. 
D) All of the factors for Arkansas are correct. 
A) The sales factor for Arkansas is approximately 35%. 
B) Arkansas payroll percentage is approximately 11.1%. 
C) The property factor for Arkansas is approximately 7.14%. 
D) All of the factors for Arkansas are correct.

Question 3

Fleming Corporation,a U.S.multinational,has pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule.     Fleming paid $50,000 income tax to Country A.If Fleming takes the foreign tax credit,compute its worldwide tax burden as a percentage of its pretax income.

Accepted Answer

A) 34% 
B) 35% 
C) 44% 
D) 45% 
A) 34% 
B) 35% 
C) 44% 
D) 45%

Question 4

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 does not owe any U.S.tax on the dividend.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Lilly Inc.,a U.S.multinational with a 34% marginal tax rate,conducts a branch operation in a foreign country with a 25% income tax.This year,the branch generated $500,000 taxable income.What is the total tax burden (domestic and foreign)on the earnings of the branch operation?

Accepted Answer

A) $170,000 
B) $125,000 
C) $295,000 
D) $45,000 
A) $170,000 
B) $125,000 
C) $295,000 
D) $45,000

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) 44% 
B) 45% 
C) 41.5% 
D) 40.6% 
A) 44% 
B) 45% 
C) 41.5% 
D) 40.6%

Question 9

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?

Accepted Answer

A) Operation through a foreign subsidiary 
B) Operation through a foreign branch 
C) Operation through a domestic subsidiary 
D) Both b.and c. 
A) Operation through a foreign subsidiary 
B) Operation through a foreign branch 
C) Operation through a domestic subsidiary 
D) Both b.and c.

Question 10

If a corporation with a 35% marginal federal income tax rate pays $20,000 state income tax,the after-tax cost of the state tax is $13,000.

Accepted Answer

A) True 
 B)False

Question 11

Fleming Corporation,a U.S.multinational,has pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule.     Fleming paid $200,000 income tax to Country A.If Fleming takes the foreign tax credit,compute its worldwide tax burden as a percentage of its pretax income.

Accepted Answer

A) 34% 
B) 35% 
C) 36% 
D) 44% 
A) 34% 
B) 35% 
C) 36% 
D) 44%

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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?

Accepted Answer

A) Southern could open a branch manufacturing operation in a foreign country with a 27% corporate income tax. 
B) Southern could open a branch manufacturing operation in a foreign country with a 40% corporate income tax. 
C) Southern could repatriate foreign source income in the form of dividends from its controlled subsidiary operating in a country with a 38% corporate income tax. 
D) None of these strategies would increase the use of the FTC carryforward. 
A) Southern could open a branch manufacturing operation in a foreign country with a 27% corporate income tax. 
B) Southern could open a branch manufacturing operation in a foreign country with a 40% corporate income tax. 
C) Southern could repatriate foreign source income in the form of dividends from its controlled subsidiary operating in a country with a 38% corporate income tax. 
D) None of these strategies would increase the use of the FTC carryforward.

Question 15

Under the U.S.tax system,a domestic corporation pays U.S.tax only on the portion of its business income earned in the United States.

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

A) $83,000 
B) $95,000 
C) $32,000 
D) $170,000 
A) $83,000 
B) $95,000 
C) $32,000 
D) $170,000

Question 17

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.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.

Accepted Answer

a.Pogo will recognize $300,000

Question 18

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?

Accepted Answer

A) Lexington's tax liability to state A will increase. 
B) Any increase in Lexington's tax liability to state A will be offset by a decline in tax liability to other states. 
C) Lexington's tax liability to state A will decrease. 
D) Lexington's tax liability to state A will be unaffected by this change. 
A) Lexington's tax liability to state A will increase. 
B) Any increase in Lexington's tax liability to state A will be offset by a decline in tax liability to other states. 
C) Lexington's tax liability to state A will decrease. 
D) Lexington's tax liability to state A will be unaffected by this change.

Question 19

This year,Plateau,Inc.'s before-tax income was $4,765,000.Plateau paid $310,000 income tax to state A and $130,000 income tax to state B.
a.Compute Plateau's federal taxable income and tax liability.
b.What is Plateau's overall income tax rate?

Accepted Answer

a.Federal taxable income: $4,3

Question 20

Transfer pricing issues arise:

Accepted Answer

A) When tangible goods are transferred between related parties operating in different taxing jurisdictions. 
B) When rights to use intangible assets,such as patents or trademarks,are licensed between related parties operating in different taxing jurisdictions. 
C) Both of the above situations can create transfer pricing issues. 
D) Neither of the above situations creates transfer pricing issues. 
A) When tangible goods are transferred between related parties operating in different taxing jurisdictions. 
B) When rights to use intangible assets,such as patents or trademarks,are licensed between related parties operating in different taxing jurisdictions. 
C) Both of the above situations can create transfer pricing issues. 
D) Neither of the above situations creates transfer pricing issues.

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

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: Which of the following statements is true?

Fleming Corporation,a U.S.multinational,has pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule. Fleming paid $50,000 income tax to Country A.If Fleming takes the foreign tax credit,compute its worldwide tax burden as a percentage of its pretax income.

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 does not owe any U.S.tax on the dividend.

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

Lilly Inc.,a U.S.multinational with a 34% marginal tax rate,conducts a branch operation in a foreign country with a 25% income tax.This year,the branch generated $500,000 taxable income.What is the total tax burden (domestic and foreign)on the earnings of the branch operation?

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

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.

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?

If a corporation with a 35% marginal federal income tax rate pays $20,000 state income tax,the after-tax cost of the state tax is $13,000.

Fleming Corporation,a U.S.multinational,has pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule. Fleming paid $200,000 income tax to Country A.If Fleming takes the foreign tax credit,compute its worldwide tax burden as a percentage of its pretax income.

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

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

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?

Under the U.S.tax system,a domestic corporation pays U.S.tax only on the portion of its business income earned in the United States.

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?

This year,Plateau,Inc.'s before-tax income was $4,765,000.Plateau paid $310,000 income tax to state A and $130,000 income tax to state B. a.Compute Plateau's federal taxable income and tax liability. b.What is Plateau's overall income tax rate?

Transfer pricing issues arise:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 13: Jurisdictional Issues in Business Taxation

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

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: Which of the following statements is true?

Fleming Corporation,a U.S.multinational,has pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule. Fleming paid $50,000 income tax to Country A.If Fleming takes the foreign tax credit,compute its worldwide tax burden as a percentage of its pretax income.

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 does not owe any U.S.tax on the dividend.

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

Lilly Inc.,a U.S.multinational with a 34% marginal tax rate,conducts a branch operation in a foreign country with a 25% income tax.This year,the branch generated $500,000 taxable income.What is the total tax burden (domestic and foreign)on the earnings of the branch operation?

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

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.

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?

If a corporation with a 35% marginal federal income tax rate pays $20,000 state income tax,the after-tax cost of the state tax is $13,000.

Fleming Corporation,a U.S.multinational,has pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule. Fleming paid $200,000 income tax to Country A.If Fleming takes the foreign tax credit,compute its worldwide tax burden as a percentage of its pretax income.

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

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

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?

Under the U.S.tax system,a domestic corporation pays U.S.tax only on the portion of its business income earned in the United States.

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?

This year,Plateau,Inc.'s before-tax income was $4,765,000.Plateau paid $310,000 income tax to state A and $130,000 income tax to state B. a.Compute Plateau's federal taxable income and tax liability. b.What is Plateau's overall income tax rate?

Transfer pricing issues arise:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters