Exam 13: Jurisdictional Issues in Business Taxation

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?

The payroll factor in the UDITPA state income tax apportionment formula always includes executive compensation.

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?

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

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 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.

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.

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.

A foreign branch operation of a U.S. corporation is not a separate legal entity.

The UDITPA formula for state income tax apportionment consists of three factors: sales, payroll, and profit.

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

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?

Columbus Inc. owns 100 percent of the stock of Spania, a foreign corporation. All of Spania's income is foreign source, and its foreign income tax rate is 20 percent. This year, Spania distributed a $100,000 dividend to Columbus. a. Assuming that Columbus is in the 35 percent tax bracket, compute its U.S. tax on the dividend. b. How would your computation change if Spania's foreign income tax rate was 45 percent?

Which of the following activities create state income tax nexus?

Lexington Corporation conducts business in four states. In state A, its sales factor is 50%, its payroll factor is 14%, and its property factor is 29%. State A uses an equally-weighted three-factor apportionment formula, but plans to change to a formula that double-weight the sales factor. Which is of the following statements is true?

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

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.

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?

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.

Jovar Inc., a U.S. multinational, began operations this year. Jovar had pretax U.S. source income and foreign source income as follows. Jovar paid $50,000 income tax to Country O. Compute Jovar's U.S. tax liability if it takes the foreign tax credit.