Question 1

Which of the following statements about the Uniform Division of Income for Tax Purposes Act (UDITPA) is false?

Accepted Answer

A)  UDITPA requires all states to use the same method for apportioning income of multistate businesses. 
B)  UDITPA recommends an equally-weighted three-factor formula for apportioning income of multistate businesses. 
C)  The UDITPA property factor equals the cost of real or tangible personal property located in a state divided by the total cost of such property. 
D)  The UDITPA payroll factor equals the compensation paid to employees working in a state divided by total compensation. 
A)  UDITPA requires all states to use the same method for apportioning income of multistate businesses. 
B)  UDITPA recommends an equally-weighted three-factor formula for apportioning income of multistate businesses. 
C)  The UDITPA property factor equals the cost of real or tangible personal property located in a state divided by the total cost of such property. 
D)  The UDITPA payroll factor equals the compensation paid to employees working in a state divided by total compensation.

Question 2

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

Accepted Answer

A)  The foreign tax credit allows U.S. companies to defer U.S. tax on foreign source income. 
B)  The foreign tax credit is available to foreign corporations doing business in the U.S. 
C)  The foreign tax credit is allowed for all types of foreign taxes. 
D)  By permitting a foreign tax credit, the U.S. relinquishes its taxing jurisdiction on foreign source income earned by U.S. corporations to the extent that income is taxed by a foreign jurisdiction. 
A)  The foreign tax credit allows U.S. companies to defer U.S. tax on foreign source income. 
B)  The foreign tax credit is available to foreign corporations doing business in the U.S. 
C)  The foreign tax credit is allowed for all types of foreign taxes. 
D)  By permitting a foreign tax credit, the U.S. relinquishes its taxing jurisdiction on foreign source income earned by U.S. corporations to the extent that income is taxed by a foreign jurisdiction.

Question 3

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

Accepted Answer

A)  U.S. corporation conducting 100 percent of its business outside the United States 
B)  Branch of U.S. corporation operating entirely in Germany 
C)  French subsidiary of U.S. parent operating entirely in France 
D)  Dutch corporation operating entirely within the United States 
A)  U.S. corporation conducting 100 percent of its business outside the United States 
B)  Branch of U.S. corporation operating entirely in Germany 
C)  French subsidiary of U.S. parent operating entirely in France 
D)  Dutch corporation operating entirely within the United States

Question 4

Koscil Inc. had the following taxable income. $$\begin{array} { l r } 
\text { U.S. source income } & \$ 1,435,000 \
\text { Foreign source income } & \underline { 850,000 } \
\text { Taxable income } & \$ 2,285,000
\end{array}$$ Koscil paid $315,000 foreign income tax. Compute its U.S. income tax liability.

Accepted Answer

U.S. tax before credits = $776

Question 5

Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.

Accepted Answer

A) True 
 B)False

Question 6

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  The presence of corporate employees in the host country for a limited time period. 
B)  Shipment of goods by the foreign corporation to customers in the host country. 
C)  Maintenance of a sales office in the host country. 
D)  All of the above would qualify as a permanent establishment. 
A)  The presence of corporate employees in the host country for a limited time period. 
B)  Shipment of goods by the foreign corporation to customers in the host country. 
C)  Maintenance of a sales office in the host country. 
D)  All of the above would qualify as a permanent establishment.

Question 8

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.

Accepted Answer

A) True 
 B)False

Question 9

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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: $$\begin{array} { | l | r | r | r | r | } 
\hline &  { \text { Arkansas } } &  { \text { Oklahoma } } &  { \text { Kansas } } &  { \text { Total } } \
\hline \text { Gross receipts/sales } & \$ 175,000 & \$ 225,000 & \$ 100,000 & \$ 500,000 \
\hline \text { Payroll } & 20,000 & 140,000 & 20,000 & 180,000 \
\hline \text { Property } & 50,000 & 600,000 & 50,000 & 700,000 \
\hline
\end{array}$$ 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 above 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 above factors for Arkansas are correct.

Question 12

A corporation is usually subject to tax by any state in which it engages in any business transactions.

Accepted Answer

A) True 
 B)False

Question 13

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 14

The foreign tax credit is available only for foreign income, excise, value-added, sales, property and transfer taxes.

Accepted Answer

A) True 
 B)False

Question 15

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows. $\begin{array}{lr}
\text { U.S. source income } & \$ 1,000,000 \
\text { Foreign source income-Country A } & 500,000 \
\text { Total } & \$ 1,500,000
\end{array}$ Fleming paid $50,000 income tax to CountryA. 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 16

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

Accepted Answer

A) True 
 B)False

Question 17

Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows. $$\begin{array} { l r } 
\text { U.S. source income } & \$ 700,000 \
\text { Foreign source income--Country X } & \underline { 100,000 } \
\text { Total } & \$ 800,000
\end{array}$$ Global paid $25,000 income tax to Country X. What is Global's U.S. tax liability if it takes the foreign tax credit?

Accepted Answer

A)  $247,000 
B)  $238,000 
C)  $222,000 
D)  $272,000 
A)  $247,000 
B)  $238,000 
C)  $222,000 
D)  $272,000

Question 18

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 19

Transfer prices cannot be used by U.S. corporations and their foreign affiliates to shift income between taxing jurisdictions.

Accepted Answer

A) True 
 B)False

Question 20

A foreign branch operation of a U.S. corporation is not a separate legal entity.

Accepted Answer

A) True 
 B)False

Which of the following statements about the Uniform Division of Income for Tax Purposes Act (UDITPA) is false?

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

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

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

Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

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

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

A corporation is usually subject to tax by any state in which it engages in any business transactions.

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

The foreign tax credit is available only for foreign income, excise, value-added, sales, property and transfer taxes.

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

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.

Transfer prices cannot be used by U.S. corporations and their foreign affiliates to shift income between taxing jurisdictions.

A foreign branch operation of a U.S. corporation is not a separate legal entity.

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 about the Uniform Division of Income for Tax Purposes Act (UDITPA) is false?

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

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

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

Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

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

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

A corporation is usually subject to tax by any state in which it engages in any business transactions.

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

The foreign tax credit is available only for foreign income, excise, value-added, sales, property and transfer taxes.

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

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.

Transfer prices cannot be used by U.S. corporations and their foreign affiliates to shift income between taxing jurisdictions.

A foreign branch operation of a U.S. corporation is not a separate legal entity.

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