Exam 13: Jurisdictional Issues in Business Taxation

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?

San Carlos Corporation, a U.S. multinational, had pretax U.S. source income and foreign source income as follows. U.S. source income \ 400,000 Foreign source income--Country W Total \ 700,000 San Carlos paid $100,000 income tax to Country W. Calculate San Carlos' tax savings if it takes a foreign tax credit rather than deducting this tax.

Lincoln Corporation, which has a 34% marginal tax rate, 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?

Jenkin Corporation reported the following for its first two taxable years. Year 1 Year 2 U.S. source income \ 500,000 \ 600,000 Foreign source income Taxable income Foreign tax paid \ 80,000 \ 100,000 Calculate Jenkin's U.S. tax liability for Year 2.

Which of the following statements concerning the taxation of a U.S. multinational corporation is true?

Columbus Inc. owns 100 percent of the stock of Spania, a foreign corporation. All of Spania's income is foreign source, and its foreign income tax rate is 20 percent. This year, Spania distributed a $100,000 dividend to Columbus. a. Assuming that Columbus is in the 35 percent tax bracket, compute its U.S. tax on the dividend. b. How would your computation change if Spania's foreign income tax rate was 45 percent?

World Sales, Inc., a U.S. multinational, had pretax U.S. source income and foreign source income as follows. U.S. source income \ 500,000 Foreign source income--Country O 200,000 Total \ 700,000 World Sales paid $50,000 income taxes to Country O. What is World Sale's U.S. tax liability if it deducts the foreign taxes paid?

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.

Which of the following activities create state income tax nexus?

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

GAAP-based consolidated financial statements include only income earned by the consolidated group's domestic subsidiaries.

The foreign tax credit is available for both income and property taxes paid to a foreign jurisdiction.

Albany, Inc. does business in states C andD. State C apportions income using an equally-weighted three-factor formula; state D uses an apportionment formula that double-weights the sales factor. 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 20\% 80\% Calculate Albany's income taxable in each state.

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

Sunny, a California corporation, earned the following income this year. U.S. source income \ 557,000 Foreign source income from Country L branch 337,900 Foreign source income from Country Q branch 965,100 Dividends from Sun de Sud 400,000 Sunny owns 100% of Sun de Sud, a foreign corporation operating a business in Country M and paying foreign income tax at a 50% rate. Sunny paid $124,000 foreign income tax to Country L, $203,000 income tax to Country Q, and no foreign withholding tax on its Sun de Sud dividends. Assuming a 34% tax rate, compute Sunny's U.S. tax.

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

Mega, Inc., a U.S. multinational, has pretax U.S. source income and foreign source income as follows. U.S. source income \ 760,000 Foreign source income--Country M Total \ 840,000 Mega paid $20,000 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?

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).

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: Arkansas Oklahoma Kansas Total Gross receipts/sales \ 175,000 \ 225,000 \ 100,000 \ 500,000 Payroll 20,000 140,000 20,000 180,000 Property 50,000 600,000 50,000 700,000 Tri-State's income for the current year is $250,000. Approximately how much will be taxed by Kansas?