Question 1

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 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

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 4

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 5

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows.   Fleming paid $200,000 income tax to Country A. 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)  36% 
D)  44% 
A)  34% 
B)  35% 
C)  36% 
D)  44%

Question 6

San Carlos Corporation, a U.S. multinational, had pretax U.S. source income and foreign source income as follows.   San Carlos paid $100,000 income tax to Country W. Calculate San Carlos' tax savings if it takes a foreign tax credit rather than deducting this tax.

Accepted Answer

A)  $100,000 
B)  $66,000 
C)  $34,000 
D)  $0 
A)  $100,000 
B)  $66,000 
C)  $34,000 
D)  $0

Question 7

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 8

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 9

Which of the following statements concerning the taxation of a U.S. multinational corporation is true?

Accepted Answer

A)  A U.S. corporation is taxed by the United States only on its U.S. source income. 
B)  The foreign tax credit ensures that a U.S. corporation will never pay taxes at a higher rate than the one imposed by the U.S. tax law. 
C)  Cross-crediting allows a U.S. corporation to maximize its foreign tax credit. 
D)  The foreign tax credit allows a U.S. corporation to defer taxation of its foreign source income until the earnings are repatriated. 
A)  A U.S. corporation is taxed by the United States only on its U.S. source income. 
B)  The foreign tax credit ensures that a U.S. corporation will never pay taxes at a higher rate than the one imposed by the U.S. tax law. 
C)  Cross-crediting allows a U.S. corporation to maximize its foreign tax credit. 
D)  The foreign tax credit allows a U.S. corporation to defer taxation of its foreign source income until the earnings are repatriated.

Question 10

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 11

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 12

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 13

Many Mountains, Inc. is a U.S. multinational corporation. This year, it had the following income.   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 14

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. What is Lincoln's tax basis in its CFC stock at the end of the taxable year?

Accepted Answer

A)  $100,000 
B)  $300,000 
C)  $400,000 
D)  $0 
A)  $100,000 
B)  $300,000 
C)  $400,000 
D)  $0

Question 15

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 16

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.   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 17

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows.   Fleming paid $50,000 income tax to Country A. 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 18

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 19

Mega, Inc., a U.S. multinational, has pretax U.S. source income and foreign source income as follows.   Mega paid $20,000 income tax to Country M. Mega has a $25,000 foreign tax credit carryforward. What is Mega's U.S. tax liability if it takes the foreign tax credit?

Accepted Answer

A)  $265,600 
B)  $240,600 
C)  $285,600 
D)  $258,400 
A)  $265,600 
B)  $240,600 
C)  $285,600 
D)  $258,400

Question 20

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:   Tri-State's income for the current year is $250,000. Approximately how much will be taxed by Kansas?

Accepted Answer

A)  $83,000 
B)  $95,000 
C)  $32,000 
D)  $170,000 
A)  $83,000 
B)  $95,000 
C)  $32,000 
D)  $170,000

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

Transfer pricing issues arise:

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

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

San Carlos Corporation, a U.S. multinational, had pretax U.S. source income and foreign source income as follows. San Carlos paid $100,000 income tax to Country W. Calculate San Carlos' tax savings if it takes a foreign tax credit rather than deducting this tax.

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%.

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

Which of the following statements concerning the taxation of a U.S. multinational corporation is true?

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

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.

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

Many Mountains, Inc. is a U.S. multinational corporation. This year, it had the following income. 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.

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

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Fleming paid $50,000 income tax to Country A. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

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

Mega, Inc., a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Mega paid $20,000 income tax to Country M. Mega has a $25,000 foreign tax credit carryforward. What is Mega's U.S. tax liability if it takes the 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

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

Transfer pricing issues arise:

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

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

San Carlos Corporation, a U.S. multinational, had pretax U.S. source income and foreign source income as follows. San Carlos paid $100,000 income tax to Country W. Calculate San Carlos' tax savings if it takes a foreign tax credit rather than deducting this tax.

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%.

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

Which of the following statements concerning the taxation of a U.S. multinational corporation is true?

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

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.

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

Many Mountains, Inc. is a U.S. multinational corporation. This year, it had the following income. 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.

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

Fleming Corporation, a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Fleming paid $50,000 income tax to Country A. If Fleming takes the foreign tax credit, compute its worldwide tax burden as a percentage of its pretax income.

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

Mega, Inc., a U.S. multinational, has pretax U.S. source income and foreign source income as follows. Mega paid $20,000 income tax to Country M. Mega has a $25,000 foreign tax credit carryforward. What is Mega's U.S. tax liability if it takes the 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