Question 1

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 2

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 3

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%.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements regarding controlled foreign corporations is true?

Accepted Answer

A)  U.S. shareholders are taxable on any income earned by a controlled foreign corporation. 
B)  U.S. shareholders are never taxable on income earned by a controlled foreign corporation until such income is distributed to the shareholders. 
C)  U.S. shareholders of a controlled foreign corporation can increase their basis by the amount of any constructive distributions from the corporation. 
D)  Controlled foreign corporations are taxable in the United States on their worldwide income. 
A)  U.S. shareholders are taxable on any income earned by a controlled foreign corporation. 
B)  U.S. shareholders are never taxable on income earned by a controlled foreign corporation until such income is distributed to the shareholders. 
C)  U.S. shareholders of a controlled foreign corporation can increase their basis by the amount of any constructive distributions from the corporation. 
D)  Controlled foreign corporations are taxable in the United States on their worldwide income.

Question 5

Origami does business in states X and Y. State X uses an equally-weighted three-factor apportionment formula and has a 4 percent state tax rate. State Y uses an apportionment formula that double-weights the sales factor and has a 6 percent tax rate. Cromwell's taxable income, before apportionment, is $3 million. Its sales, payroll, and property information are as follows. $$\begin{array} { | l | r | r | r | } 
\hline & { X } &  { Y } & { \text { Total } } \
\hline \text { Gross receipts/sales } & \$ 575,000 & \$ 100,000 & \$ 675,000 \
\hline \text { Payroll } & 140,000 & 60,000 & 200,000 \
\hline \text { Property } & 600,000 & 150,000 & 750,000 \
\hline
\end{array}$$ a. Calculate Origami's apportionment factors, income apportioned to each state, and state tax liability.
b. State Y is considering changing its apportionment formula to a single sales factor. Given its current level of activity, would such a change increase or decrease Origami's state income tax burden? Provide calculations to support your conclusion.

Accepted Answer

a. State X: Sales factor = 85.2% = $575,

Question 6

The deemed paid foreign tax credit is 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.

Accepted Answer

A) True 
 B)False

Question 7

Cambridge, Inc. conducts business in states X and Y. This year, its before-tax income was $150,000. Below is information regarding its sales, payroll, and property factors in both states. $$\begin{array} { | l | r | r | r | } 
\hline & { X } & { Y } &  { \text { Total } } \
\hline \text { Gross receipts/sales } & \$ 325,000 & \$ 75,000 & \$ 400,000 \
\hline \text { Payroll } & 90,000 & 10,000 & 100,000 \
\hline \text { Property } & 200,000 & 50,000 & 250,000 \
\hline
\end{array}$$ Both states apply an equally-weighted three-factor formula to apportion income. State X has a 10% corporate income tax and state Y has a 5% corporate income tax. Compute the state tax savings if Cambridge could relocate $100,000 of property and $50,000 of payroll from state X to state Y.

Accepted Answer

A)  $2,250 
B)  $12,563 
C)  $11,532 
D)  $9,094 
A)  $2,250 
B)  $12,563 
C)  $11,532 
D)  $9,094

Question 8

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 9

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S. rate.

Accepted Answer

A) True 
 B)False

Question 10

The foreign subsidiaries of a U.S. corporation cannot be included in a U.S. consolidated tax return.

Accepted Answer

A) True 
 B)False

Question 11

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Accepted Answer

A) True 
 B)False

Question 12

Korn, Co. was incorporated in Delaware. It has production, distribution, and sales facilities in Kansas and Nebraska. All of Korn's customers reside in Kansas or Nebraska. Assume that both states use the UDITPA formula for apportionment of income. The corporation is investing in new equipment that cost $900,000. The equipment could be used in either the Kansas or Nebraska production facilities. Assume that Kansas' corporate income tax rate is 7% and Nebraska's is 8.5%. Should the equipment be placed in Kansas or Nebraska to minimize Korn's state income tax?

Accepted Answer

A)  Kansas. 
B)  Nebraska. 
C)  Either state, because state income tax will be unaffected by this choice. 
D)  Korn should place the equipment in a third state in which it does not have nexus. 
A)  Kansas. 
B)  Nebraska. 
C)  Either state, because state income tax will be unaffected by this choice. 
D)  Korn should place the equipment in a third state in which it does not have nexus.

Question 13

Excess foreign tax credits can only be carried to future tax years.

Accepted Answer

A) True 
 B)False

Question 14

A foreign source dividend received by a U.S. corporation is eligible for the 70% dividends-received deduction.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following could result in a corporation having more than 100% of its income subject to state taxation?

Accepted Answer

A)  Some of the states in which the corporation conducts business have not adopted the Uniform Division of Income for Tax Purposes Act formula. 
B)  The states in which the corporation conducts business have adopted different definitions of the specific components of the UDITPA formula. 
C)  Some of the states in which the corporation conducts business strictly apply the UDITPA formula while others double-weight the sales factor. 
D)  All of these factors could result in a corporation having more than 100% of its income subject to state taxation. 
A)  Some of the states in which the corporation conducts business have not adopted the Uniform Division of Income for Tax Purposes Act formula. 
B)  The states in which the corporation conducts business have adopted different definitions of the specific components of the UDITPA formula. 
C)  Some of the states in which the corporation conducts business strictly apply the UDITPA formula while others double-weight the sales factor. 
D)  All of these factors could result in a corporation having more than 100% of its income subject to state taxation.

Question 16

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 17

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. $$\begin{array} { | l | r | r | r | } 
\hline & \begin{array} { l } 
\text { U.S. Source } \
\text { Income }
\end{array} & \begin{array} { c } 
\text { Foreign } \
\text { Source Income }
\end{array} & \begin{array} { c } 
\text { Foreign Income } \
\text { Tax Paid }
\end{array} \
\hline \text { Pennworth } & \$ 3,000,000 & \$ 1,000,000 & \$ 400,000 \
\hline \text { Delco } & 0 & 1,000,000 & 100,000 \
\hline
\end{array}$$ If Pennworth and Delco file a consolidated U.S. tax return, compute consolidated income tax liability.

Accepted Answer

A)  $1,200,000 
B)  $1,260,000 
C)  $1,700,000 
D)  $1,020,000 
A)  $1,200,000 
B)  $1,260,000 
C)  $1,700,000 
D)  $1,020,000

Question 18

This year, Sutton Corporation's before-tax income was $2,000,000. It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa. Compute Sutton's federal income tax.

Accepted Answer

A)  $680,000 
B)  $518,500 
C)  $700,000 
D)  $533,750 
A)  $680,000 
B)  $518,500 
C)  $700,000 
D)  $533,750

Question 19

All states assessing an income tax use the same formula for apportionment purposes.

Accepted Answer

A) True 
 B)False

Question 20

In which of the following cases are the U.S. shareholders in a controlled foreign corporation (CFC) deferring U.S. tax on the CFC's income?

Accepted Answer

A)  The CFC operates in a jurisdiction with a tax rate higher than the U.S. rate, has no subpart F income, and pays no dividends. 
B)  The CFC operates in a jurisdiction with a tax rate lower than the U.S. rate, has no subpart F income, and pays no dividends. 
C)  The CFC operates in a jurisdiction with a tax rate lower than the U.S. rate, and 100% of the CFC's income is subpart F income. 
D)  The CFC operates in a jurisdiction with a tax rate higher than the U.S. rate, and distributes 100% of after-tax earnings as dividends. 
A)  The CFC operates in a jurisdiction with a tax rate higher than the U.S. rate, has no subpart F income, and pays no dividends. 
B)  The CFC operates in a jurisdiction with a tax rate lower than the U.S. rate, has no subpart F income, and pays no dividends. 
C)  The CFC operates in a jurisdiction with a tax rate lower than the U.S. rate, and 100% of the CFC's income is subpart F income. 
D)  The CFC operates in a jurisdiction with a tax rate higher than the U.S. rate, and distributes 100% of after-tax earnings as dividends.

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

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.

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%.

Which of the following statements regarding controlled foreign corporations is true?

The deemed paid foreign tax credit is 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.

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?

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S. rate.

The foreign subsidiaries of a U.S. corporation cannot be included in a U.S. consolidated tax return.

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Excess foreign tax credits can only be carried to future tax years.

A foreign source dividend received by a U.S. corporation is eligible for the 70% dividends-received deduction.

Which of the following could result in a corporation having more than 100% of its income subject to state taxation?

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?

This year, Sutton Corporation's before-tax income was $2,000,000. It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa. Compute Sutton's federal income tax.

All states assessing an income tax use the same formula for apportionment purposes.

In which of the following cases are the U.S. shareholders in a controlled foreign corporation (CFC) deferring U.S. tax on the CFC's income?

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

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.

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%.

Which of the following statements regarding controlled foreign corporations is true?

The deemed paid foreign tax credit is 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.

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?

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S. rate.

The foreign subsidiaries of a U.S. corporation cannot be included in a U.S. consolidated tax return.

Article 1 of the U.S. Constitution, referred to as the commerce clause, prohibits a state from charging an extra 10 cent tax per gallon on gasoline sold to trucks with out-of-state license plates.

Excess foreign tax credits can only be carried to future tax years.

A foreign source dividend received by a U.S. corporation is eligible for the 70% dividends-received deduction.

Which of the following could result in a corporation having more than 100% of its income subject to state taxation?

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?

This year, Sutton Corporation's before-tax income was $2,000,000. It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa. Compute Sutton's federal income tax.

All states assessing an income tax use the same formula for apportionment purposes.

In which of the following cases are the U.S. shareholders in a controlled foreign corporation (CFC) deferring U.S. tax on the CFC's income?

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