Exam 16: US Taxation of Foreign-Related Transactions

Domestic corporation B owns 200 of the 400 outstanding shares of foreign corporation K's stock.U.S.citizen R owns the remaining K stock.The domestic corporation held the stock for 40 days two years ago,365 days last year,and 80 days this year.None of K's income is Subpart F income.The foreign corporation has E&P of $50,000 for each of the three years in question.None of the years is a leap year.On the 80th day of the current year,the stock is sold by B to R in a transaction in which a $100,000 gain is recognized by B.What part of B's gain is capital gain?

Which of the following is an advantage of conducting foreign operations through a branch?

Guinness Corporation,a U.S.corporation,began operating overseas in the current year.This year,Guinness sold machine tools that it manufactured in the United States to Canadian companies from a branch office located in Toronto,purchased a 40% investment in a Brazilian corporation from which it received a dividend,and received royalties from an English firm that is the licensee of machine tool patents held by Guinness.The English firm uses the patents to manufacturer machine tools it sells in England.What international tax issues should Guinness's Director of Taxes consider with respect to these activities?

A controlled foreign corporation (CFC)is incorporated in Country B,and is 100% owned by American Manufacturing Corporation.It purchases raw materials from its U.S.parent corporation,manufactures widgets,and sells 70% of the widgets to unrelated purchasers in Country A and 30% to unrelated purchasers in Country B.All widgets will be used in the countries in which they are purchased.The sales produce $100,000 of taxable income.The foreign-based company sales income reportable by American Manufacturing Corporation under the Subpart F rules is

For the foreign credit limitation calculation,income derived from the sale of inventory which is produced by the seller,is considered earned

Julia,an accrual-method taxpayer,is a U.S.citizen and a resident of a foreign country.Her tax year for both countries is a calendar year.Julia accrues 50,000 coras for the foreign country tax liability on December 31 of last year when the exchange rate is one cora = $1.Julia pays the tax to the foreign country on its due date,March 1 of the current year.The exchange rate on that date is one cora = $1.50.Julia files her U.S.tax return for last year on April 15 of the current year when the exchange rate is one cora = $2.Julia's foreign tax credit is

U.S.Corporation,a domestic corporation,owns all of Foreign Corporation's stock.Foreign Corporation is incorporated in France.This year,Foreign Corporation suffers a $100,000 net operating loss (NOL)in France.What amount of the $100,000 NOL can U.S.Corporation use to reduce its current-year U.S.taxable income?

Zeta Corporation,incorporated in Country Z,is 100% owned by Zelda Corporation,a U.S.corporation.Zelda purchases some machines from an unrelated corporation,for use in Country A.The portion of the sales contract covering installation and maintenance of the machines is assigned by Zelda to Zeta.Zeta is to be paid for these services by Zelda.Does this qualify as foreign base company services income?

What are the five major income categories that are taxed under the Subpart F rules? Explain the concept of Subpart F income.

U.S.citizens and resident aliens working abroad may qualify for the foreign-earned income exclusion of $101,300 in 2016.

Which of the following statements is incorrect?

Which of the following statements regarding inversions is incorrect?

What are the carryback and carryforward periods for the foreign tax credit?

Excess foreign tax credits can be carried back one year and forward five years.

Ashley,a U.S.citizen,works in England for part of the year.She earns $40,000 in England,paying $10,000 in income taxes to the British government.Her U.S.income is $60,000 and she pays $12,000 in U.S.taxes.Her U.S.taxes on her worldwide income are $20,000.What is Ashley's excess foreign tax credit? Assume she does not qualify for the foreign-earned income exclusion.

Identify which of the following statements is true.

A taxpayer may make the election to either deduct or take a credit for foreign income taxes

Under the Subpart F rules,controlled foreign corporations (CFCs)are required to distribute a certain portion of their income as dividends to their U.S.shareholders.

Cane Corporation owns 45% of the stock of Edmonton Airline Corporation.In its first year of operations,Edmonton Airline,a Canadian corporation,earns $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 deemed paid foreign tax credit for the dividend?