Question 1

The foreign tax credit is available for income taxes paid to a foreign country.

Accepted Answer

A) True 
 B)False

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

Accepted Answer

A)  $250,000 
B)  $218,125 
C)  $44,375 
D)  $173,750 
A)  $250,000 
B)  $218,125 
C)  $44,375 
D)  $173,750

Question 3

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:

Accepted Answer

A)  Increase DFJ's taxable income by $185,000 and decrease Duvall's taxable income by $185,000. 
B)  Increase DFJ's taxable income by $185,000. 
C)  Require Duvall to pay $185,000 additional rent to DFJ. 
D)  Require DFJ to recognize a $185,000 constructive dividend from Duvall. 
A)  Increase DFJ's taxable income by $185,000 and decrease Duvall's taxable income by $185,000. 
B)  Increase DFJ's taxable income by $185,000. 
C)  Require Duvall to pay $185,000 additional rent to DFJ. 
D)  Require DFJ to recognize a $185,000 constructive dividend from Duvall.

Question 4

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

Accepted Answer

A)  Income from a foreign branch office is reported on the consolidated U.S. income tax return. 
B)  Income from foreign operations conducted through a domestic subsidiary is reported on the consolidated U.S. income tax return. 
C)  Income from foreign operations conducted through a foreign subsidiary is reported on the consolidated U.S. income tax return. 
D)  Dividends received by a U.S. multinational corporation from a foreign subsidiary are reported on the consolidated U.S. income tax return. 
A)  Income from a foreign branch office is reported on the consolidated U.S. income tax return. 
B)  Income from foreign operations conducted through a domestic subsidiary is reported on the consolidated U.S. income tax return. 
C)  Income from foreign operations conducted through a foreign subsidiary is reported on the consolidated U.S. income tax return. 
D)  Dividends received by a U.S. multinational corporation from a foreign subsidiary are reported on the consolidated U.S. income tax return.

Question 5

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 6

Stockholm Imports Inc., a U.S. multinational, received a $500,000 dividend from its foreign subsidiary. The subsidiary paid $112,000 foreign income tax with respect to this dividend. Stockholm's U.S. tax rate is 34%. If Stockholm has no other foreign source income, compute its deemed paid foreign tax credit.

Accepted Answer

A)  $208,080 
B)  $112,000 
C)  $58,000 
D)  $0 
A)  $208,080 
B)  $112,000 
C)  $58,000 
D)  $0

Question 7

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.

Question 8

A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  The foreign tax credit cannot exceed the U.S. tax on foreign source income. 
B)  Foreign tax credits in excess of the limit can be carried forward indefinitely. 
C)  Cross-crediting of taxes paid in high-tax and low-tax foreign jurisdictions can increase allowable foreign tax credits. 
D)  The foreign tax credit limitation is based on the ratio of foreign source income to total taxable income. 
A)  The foreign tax credit cannot exceed the U.S. tax on foreign source income. 
B)  Foreign tax credits in excess of the limit can be carried forward indefinitely. 
C)  Cross-crediting of taxes paid in high-tax and low-tax foreign jurisdictions can increase allowable foreign tax credits. 
D)  The foreign tax credit limitation is based on the ratio of foreign source income to total taxable income.

Question 10

The United States taxes its citizens on their worldwide incomes.

Accepted Answer

A) True 
 B)False

Question 11

The foreign tax credit can reduce a corporation's alternative minimum tax.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  An income tax treaty is a bilateral agreement between the governments of two countries defining and limiting each country's respective tax jurisdiction. 
B)  The provisions of income tax treaties pertain only to individuals and corporations that are residents of either treaty country. 
C)  Under a typical treaty, the non-resident country would only tax a firm's profits if the firm maintained a permanent establishment in that country. 
D)  Under a typical treaty, a firm's profits would be allocated to the countries in a manner similar to the apportionment of income among states under the UDITPA formula. 
A)  An income tax treaty is a bilateral agreement between the governments of two countries defining and limiting each country's respective tax jurisdiction. 
B)  The provisions of income tax treaties pertain only to individuals and corporations that are residents of either treaty country. 
C)  Under a typical treaty, the non-resident country would only tax a firm's profits if the firm maintained a permanent establishment in that country. 
D)  Under a typical treaty, a firm's profits would be allocated to the countries in a manner similar to the apportionment of income among states under the UDITPA formula.

Question 13

Jovar Inc., a U.S. multinational, began operations this year. Jovar had pretax U.S. source income and foreign source income as follows. $$\begin{array} { l r } 
\text { U.S. source income } & \$ 600,000 \
\text { Foreign source income--Country O } & \underline { 100,000 } \
\text { Total } & \$ 700,000
\end{array}$$ Jovar paid $50,000 income tax to Country O. Compute Jovar's U.S. tax liability if it takes the foreign tax credit.

Accepted Answer

A)  $213,000 
B)  $221,000 
C)  $204,000 
D)  $238,000 
A)  $213,000 
B)  $221,000 
C)  $204,000 
D)  $238,000

Question 14

Chester, Inc., a U.S. multinational, earns income in three foreign countries. Country A has a 25% income tax, Country B has a 35% income tax, and Country C has a 45% income tax. In which of these countries could Chester lower its world-wide tax liability by operating through a foreign subsidiary rather than a domestic subsidiary? Assume the foreign subsidiary will reinvest all after-tax earnings rather than paying dividends.

Accepted Answer

A)  Country A 
B)  Country B 
C)  Country C 
D)  All three countries 
A)  Country A 
B)  Country B 
C)  Country C 
D)  All three countries

Question 15

Which of the following statements about subpart F income is false?

Accepted Answer

A)  Subpart F income is constructively repatriated to U.S. shareholders of a controlled foreign corporation (CF
C)  when earned. 
B)  Subpart F income has no commercial or economic connection to the CFC's home country. 
C)  Subpart F income includes income from the manufacture of goods in the CFC's home country. 
D)  Subpart F income includes income from the purchase of goods from a related party that are subsequently sold to another related party for use outside the CFC's home country. 
A)  Subpart F income is constructively repatriated to U.S. shareholders of a controlled foreign corporation (CF
C)  when earned. 
B)  Subpart F income has no commercial or economic connection to the CFC's home country. 
C)  Subpart F income includes income from the manufacture of goods in the CFC's home country. 
D)  Subpart F income includes income from the purchase of goods from a related party that are subsequently sold to another related party for use outside the CFC's home country.

Question 16

If Gamma Inc. is incorporated in Ohio and has its commercial domicile in Cleveland, the state of Ohio has jurisdiction to tax 100% of Gamma's business income.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Which of the following taxes is eligible for the foreign tax credit?

Accepted Answer

A)  Property taxes paid to a foreign country on the value of property owned in that country. 
B)  Value-added taxes assessed on the value of inventory manufactured in a foreign country. 
C)  Income tax assessed by a local government within a foreign country. 
D)  Sales tax assessed on the purchase of consumer goods in a foreign country. 
A)  Property taxes paid to a foreign country on the value of property owned in that country. 
B)  Value-added taxes assessed on the value of inventory manufactured in a foreign country. 
C)  Income tax assessed by a local government within a foreign country. 
D)  Sales tax assessed on the purchase of consumer goods in a foreign country.

Question 19

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

The foreign tax credit is available for income taxes paid to a foreign country.

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

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.

Transfer pricing issues arise:

A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.

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

The United States taxes its citizens on their worldwide incomes.

The foreign tax credit can reduce a corporation's alternative minimum tax.

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

Which of the following statements about subpart F income is false?

If Gamma Inc. is incorporated in Ohio and has its commercial domicile in Cleveland, the state of Ohio has jurisdiction to tax 100% of Gamma's business income.

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

Which of the following taxes is eligible for the foreign tax credit?

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

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

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

The foreign tax credit is available for income taxes paid to a foreign country.

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

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.

Transfer pricing issues arise:

A bilateral agreement between the governments of England and France defining and limiting each party's respective tax jurisdiction is an example of a tax treaty.

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

The United States taxes its citizens on their worldwide incomes.

The foreign tax credit can reduce a corporation's alternative minimum tax.

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

Which of the following statements about subpart F income is false?

If Gamma Inc. is incorporated in Ohio and has its commercial domicile in Cleveland, the state of Ohio has jurisdiction to tax 100% of Gamma's business income.

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

Which of the following taxes is eligible for the foreign tax credit?

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits state governments from using a tax to discriminate against interstate commerce.

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

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