Exam 16: US Taxation of Foreign-Related Transactions

Michael,a U.S.citizen,earned $100,000 of foreign-earned income and no other U.S.or foreign income in 2013.He also incurred $10,000 of employment-related expenses,none of which were reimbursed.If the full foreign-earned income exclusion is utilized,calculate the deductible employment-related expense (before the 2% nondeductible floor).

U.S.Corporation owns 45% of the stock of Foreign Corporation.Foreign Corporation is incorporated in Country T.In its first year of operations,Foreign Corporation earns 100,000 frugs of E&P,pays a 20,000- frug dividend to U.S.Corporation,and pays 5,000 frugs in income taxes.The exchange rate between the dollar and the frug is: first year average,1 frug = $0.20; yearend,1 frug = $0.25); tax payment date,1 frug = $0.30; and dividend payment date,1 frug = $0.28.What is the translated foreign tax amount attributable to the dividend for deemed paid foreign tax credit purposes?

Phoenix Corporation is a controlled foreign corporation (CFC)incorporated in Country X.It is 100% owned by its U.S.parent corporation.Phoenix has $80,000 of taxable income from the sale of widgets that were purchased from their U.S.parent corporation.All widgets are intended for use or consumption within Country X and have the same gross profit.Sixty percent of the widgets were sold through a Country X wholesaler that is 100% owned by Phoenix,and 40% are sold through unrelated Country X wholesalers.What amount of profits will be constructively distributed as foreign-based company sales income to the U.S.parent company?

In January of the current year,Stan Signowski's U.S.employer assigned him to their Paris office.This year,he earned salary,a cost-of-living allowance,a housing allowance,a home leave allowance that permits him to return home once each year,and an education allowance to pay for U.S.schooling for his son.Stan and his wife,Jennifer,have rented an apartment in Paris and paid French income taxes.What tax issues does Stan need to consider when preparing his tax return?

Cane Corporation owns 45% of the stock of Edmonton Airline Corporation.In its first year of operations,Edmonton Airline,a Canadian corporation,reports $400,000 of E&P and pays a $100,000 dividend to Cane Corporation.Edmonton Airline pays $50,000 in Canadian income taxes.All amounts are expressed in U.S.dollars.What is Cane Corporation's U.S.tax liability as a result of receiving the dividend? (Assume a 34% U.S.corporate tax rate.)

A foreign corporation is a CFC that is in its initial year of operation.For the current year,it reports $1 million of earnings and has an aggregate U.S.Property investment of $400,000.If none of the earnings qualified as Subpart F income,explain how the earnings are taxed.

What are the consequences of classification as a corporate inversion?

Marcella,an alien individual,is present in the United States for 122 days this year and 122 days each in the past two years.Does she satisfy both the 31-day and 183-day requirements for U.S.Residency status?

Excess foreign taxes in one basket cannot offset limitation amounts in another basket.

Income derived from the sale of merchandise inventory (i.e.,final goods purchased for resale)are sourced in the country where the sale occurs.

A U.S.corporation can claim a credit for foreign taxes withheld from dividends paid by a foreign corporation in which it owns at least 10% of the stock.

A nonresident alien cannot

A foreign corporation with a single class of stock is owned 8% by Bert,49% by Xi Yong,30% by Ernie,and 13% by Mark.Bert,Ernie,and Mark are U.S.citizens,and Xi Yong is a nonresident alien.Bert is Ernie's son.Is the foreign corporation a controlled foreign corporation (CFC)?

Identify which of the following statements is true.

Jacque,a single nonresident alien,is in the United States for 80 days in the current year engaging in the conduct of a U.S.trade or business.Jacque has a $15,000 capital gain on the sale of stock in a U.S.corporation while he was in the United States.The capital gain is not connected to his trade or business.How will the capital gain be taxed and how will the tax be collected?

Identify which of the following statements is true.

Karen,a U.S.citizen,earns $40,000 of taxable income from U.S.sources,$20,000 in taxable wages from Country A and $20,000 in taxable interest from Country B.The U.S.tax rate is 25%.The tax on Country A income is $8,000,and Country B charges no tax on the interest income.Assuming only a single basket is required,Karen's foreign tax credit that can be claimed is

U.S.citizens,resident aliens,and domestic corporations are taxed by the U.S.government on their worldwide income at regular U.S.tax rates.

Income is "effectively connected" with the conduct of a U.S.business only if

Identify which of the following statements is true.