Exam 13: Jurisdictional Issues in Business Taxation

Supplies, Inc. does business in Georgia (6% tax rate) and Alabama (5% tax rate). All other factors being equal, the company will reduce state taxes if it increases the compensation paid to its employees in Alabama.

The UDITPA formula for apportioning income among states is based on four equally weighted factors.

According to Public Law 86-272, the sale of tangible goods to residents of a state is not sufficient to establish nexus in that state.

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows. U.S. source income \ 1,000,000 Foreign source income-Country A 500,000 Total \ 1,500,000 Fleming paid $200,000 income tax to CountryA. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

Pogo, Inc., which has a 34 percent marginal tax rate, owns 50 percent of the stock of a CFC. At the beginning of the year, Pogo's basis in the CFC stock was $2 million. The CFC's current year earnings were $750,000 of which $600,000 was subpart F income. The CFC paid no foreign income tax and distributed no dividends. a. Explain Pogo's U.S. tax consequences with respect to its investment in the CFC. b. Compute Pogo's basis in its CFC stock at the end of the year.

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. How much current taxable income must Lincoln report as a result of its ownership of the CFC?