Question 1

The income earned by a foreign branch operation of a U.S. corporation is taxable by the United States only when repatriated.

Accepted Answer

A) True 
 B)False

Question 2

Wilmington, Inc., a Pennsylvania corporation, manufactures computer components that it sells to Seine Corporation, a French company, for assembly into finished products. Wilmington owns 90% of Seine's stock. Wilmington's cost per component is $5, its selling price per component is $16, and it sold 110,000 components to Seine this year. Wilmington's taxable income as reported on its Form 1120 was $2,400,000, and Seine's taxable income as reported on its French corporate income tax return was $1,750,000. Determine the effect on the taxable incomes of both corporations if the IRS determines that an arm's length transfer price per component is $23.

Accepted Answer

A)  Taxable income of both corporations will increase by $770,000. 
B)  Taxable income of both corporations will decrease by $770,000. 
C)  Wilmington's taxable income will increase by $770,000. Seine's taxable income does not change. 
D)  Wilmington's taxable income will decrease by $770,000 and Seine's taxable income will decrease by $770,000. 
A)  Taxable income of both corporations will increase by $770,000. 
B)  Taxable income of both corporations will decrease by $770,000. 
C)  Wilmington's taxable income will increase by $770,000. Seine's taxable income does not change. 
D)  Wilmington's taxable income will decrease by $770,000 and Seine's taxable income will decrease by $770,000.

Question 3

Logan, an Indiana corporation, conducts its international business through 100% controlled foreign subsidiaries. This year, Logan's U.S. source taxable income was $5,431,000, and it received $12,250,000 dividends from its foreign subsidiaries. Logan paid no foreign income tax itself, but its subsidiaries paid foreign income tax at a 30% rate. Logan's U.S. income tax (35% rate) is:

Accepted Answer

A)  $6,188,350 
B)  $2,775,850 
C)  $1,900,850 
D)  $938,350 
A)  $6,188,350 
B)  $2,775,850 
C)  $1,900,850 
D)  $938,350

Question 4

Economic nexus:

Accepted Answer

A)  May exist even though a firm has no physical presence in a state. 
B)  Does not create taxing jurisdiction under the Commerce Clause of the U.S. Constitution. 
C)  Requires a greater physical presence than traditional definitions of nexus. 
D)  Applies only to Internet business activities. 
A)  May exist even though a firm has no physical presence in a state. 
B)  Does not create taxing jurisdiction under the Commerce Clause of the U.S. Constitution. 
C)  Requires a greater physical presence than traditional definitions of nexus. 
D)  Applies only to Internet business activities.

Question 5

Section 482 of the Internal Revenue Code gives the IRS the authority to apportion or allocate gross income, deductions, or credits between/among related parties to correct any distortion resulting from unrealistic prices charged by members of the group to each other for goods or services.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Orchid Inc., a U.S. multinational with a 34% marginal tax rate, owns a foreign subsidiary operating in a country with a 25% income tax. This year, the subsidiary generated $400,000 taxable income. What is the total tax burden (domestic and foreign) on the earnings of the foreign subsidiary if it does not repatriate its after-tax earnings and has no subpart F income?

Accepted Answer

A)  $163,000 
B)  $136,000 
C)  $400,000 
D)  $100,000 
A)  $163,000 
B)  $136,000 
C)  $400,000 
D)  $100,000

Question 8

Albany, Inc. does business in states C andD. State C uses an apportionment formula that double-weights the sales factor; state D apportions income using an equally-weighted three-factor formula. Albany's before tax income is $3,000,000, and its sales, payroll, and property factors are as follows. $$\begin{array} { | l | c | c | } 
\hline & C & D \
\hline \text { Sales factor } & 50 \% & 50 \% \
\hline \text { Payroll factor } & 40 \% & 60 \% \
\hline \text { Property factor } & 20 \% & 80 \% \
\hline
\end{array}$$ Calculate Albany's income taxable in each state.

Accepted Answer

A)  State C, $1,100,000; State D, $1,800,000 
B)  State C, $1,100,000; State D, $1,900,000 
C)  State C, $1,200,000; State D, $1,800,000 
D)  State C, $1,200,000; State D, $1,900,000 
A)  State C, $1,100,000; State D, $1,800,000 
B)  State C, $1,100,000; State D, $1,900,000 
C)  State C, $1,200,000; State D, $1,800,000 
D)  State C, $1,200,000; State D, $1,900,000

Question 9

In the United States, corporations are subject only to taxes imposed by the federal government.

Accepted Answer

A) True 
 B)False

Question 10

Many Mountains, Inc. is a U.S. multinational corporation. This year, it had the following income. $$\begin{array} { l l l } 
\text { U.S. source income } & & \$ 580,000 \
\text { Foreign source income: } & & \
\quad \text { Country X } & \$ 65,000 & \
\quad \text { Country Y } & \underline { 105,000 } & \underline { 170,000 } \
\text { Total } & & \$ 750,000
\end{array}$$ Many Mountains paid $15,000 income tax to Country X and $28,500 income tax to Country Y. Compute Many Mountains' allowable foreign tax credit.

Accepted Answer

A)  $57,800 
B)  $49,550 
C)  $43,500 
D)  $49,650 
A)  $57,800 
B)  $49,550 
C)  $43,500 
D)  $49,650

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  If a U.S. corporation owns 10% or more of the voting stock of a foreign corporation, the U.S. corporation is entitled to a deemed paid foreign tax credit. 
B)  When claiming a deemed paid foreign tax credit, a U.S. corporation reports dividend income equal to the dividend received grossed up by the foreign tax paid with respect to the dividend. 
C)  A deemed paid foreign tax credit is allowed for foreign taxes paid by a domestic subsidiary of a U.S. multinational corporation. 
D)  A deemed paid foreign tax credit is subject to the foreign tax credit limitation. 
A)  If a U.S. corporation owns 10% or more of the voting stock of a foreign corporation, the U.S. corporation is entitled to a deemed paid foreign tax credit. 
B)  When claiming a deemed paid foreign tax credit, a U.S. corporation reports dividend income equal to the dividend received grossed up by the foreign tax paid with respect to the dividend. 
C)  A deemed paid foreign tax credit is allowed for foreign taxes paid by a domestic subsidiary of a U.S. multinational corporation. 
D)  A deemed paid foreign tax credit is subject to the foreign tax credit limitation.

Question 13

BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.

Accepted Answer

A) True 
 B)False

Question 14

Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

Accepted Answer

A)  Country X operations are conducted through a domestic subsidiary included in Galaxy's consolidate tax return. 
B)  Country X operations are conducted through a foreign subsidiary that paid no dividends. 
C)  Country X operations are conducted through a foreign subsidiary that distributed 100% of its after-tax earnings as a dividend to Galaxy. 
D)  Country X operations are conducted through a foreign branch. 
A)  Country X operations are conducted through a domestic subsidiary included in Galaxy's consolidate tax return. 
B)  Country X operations are conducted through a foreign subsidiary that paid no dividends. 
C)  Country X operations are conducted through a foreign subsidiary that distributed 100% of its after-tax earnings as a dividend to Galaxy. 
D)  Country X operations are conducted through a foreign branch.

Question 15

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 16

Luttrix Inc. does business in Nebraska (6% tax rate) and Colorado (3% tax rate). All other factors being equal, Luttrix will reduce state taxes if it constructs a new manufacturing plant in Colorado.

Accepted Answer

A) True 
 B)False

Question 17

The Quad affiliated group consists of Quad, a Delaware corporation, and its three wholly-owned subsidiaries. This year, the four corporations report the following net income (loss). $$\begin{array} { l c } 
\text { Quad } & \$ 1,000,000 \
\text { Subsidiary 1 } & ( 400,000 ) \
\text { Subsidiary 2 } & 200,000 \
\text { Subsidiary 3 } & 600,000
\end{array}$$ If Quad elects to file a consolidated U.S. tax return, compute consolidated taxable income assuming that subsidiaries 1 and 2 are domestic corporations and subsidiary 3 is a foreign corporation.

Accepted Answer

A)  $1,000,000 
B)  $800,000 
C)  $1,400,000 
D)  $1,800,000 
A)  $1,000,000 
B)  $800,000 
C)  $1,400,000 
D)  $1,800,000

Question 18

The deemed paid foreign tax credit treats a U.S. corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

Accepted Answer

A) True 
 B)False

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 stateB.

Accepted Answer

a. Federal taxable income: $4,

Question 20

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

Accepted Answer

A) True 
 B)False

The income earned by a foreign branch operation of a U.S. corporation is taxable by the United States only when repatriated.

Economic nexus:

Section 482 of the Internal Revenue Code gives the IRS the authority to apportion or allocate gross income, deductions, or credits between/among related parties to correct any distortion resulting from unrealistic prices charged by members of the group to each other for goods or services.

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

In the United States, corporations are subject only to taxes imposed by the federal government.

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

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

BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.

Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

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?

Luttrix Inc. does business in Nebraska (6% tax rate) and Colorado (3% tax rate). All other factors being equal, Luttrix will reduce state taxes if it constructs a new manufacturing plant in Colorado.

The deemed paid foreign tax credit treats a U.S. corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

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 stateB.

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

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 income earned by a foreign branch operation of a U.S. corporation is taxable by the United States only when repatriated.

Economic nexus:

Section 482 of the Internal Revenue Code gives the IRS the authority to apportion or allocate gross income, deductions, or credits between/among related parties to correct any distortion resulting from unrealistic prices charged by members of the group to each other for goods or services.

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

In the United States, corporations are subject only to taxes imposed by the federal government.

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

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

BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.

Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

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?

Luttrix Inc. does business in Nebraska (6% tax rate) and Colorado (3% tax rate). All other factors being equal, Luttrix will reduce state taxes if it constructs a new manufacturing plant in Colorado.

The deemed paid foreign tax credit treats a U.S. corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

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 stateB.

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

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