Exam 9: Taxation of International Transactions

In all cases,the sourcing of income is determined by the residence of the taxpayer.

Describe the importance of determining whether a foreign corporation is engaged in a U.S.trade or business.

The existence of a U.S.trade or business is a prerequisite to having effectively connected income.

Discuss the policy reasons for the § 367 cross-border transfer rules.Provide two examples of transactions to which § 367 would apply.

Mark,Inc.,a U.S.corporation,operates an unincorporated branch manufacturing operation in Germany.Mark,Inc.,reports $100,000 of taxable income from the German branch on its U.S.tax return along with $400,000 of taxable income from its U.S.operations.Mark paid $40,000 in German income taxes related to the $100,000 in branch income. Assuming a U.S.tax rate of 35%,what is Mark's U.S.tax liability after any allowable foreign tax credits?

Match the definition with the correct term. a.Indirect credit b.Direct credit c.10 percent d.50 percent e.Section 78 f.Two g. Six h. Overall foreign loss -Maximum percentage of overall foreign loss that must be recaptured in any one year.

BendCo,Inc.,a U.S.corporation,has foreign-source income and pays foreign taxes related to 2008 as follows. BendCo's worldwide taxable income is $1,600,000 and U.S.taxes before FTC are $560,000 (assume 35%).What is BendCo's U.S.tax liability after the FTC?

A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly,indirectly,or constructively at least 10% of the voting power or value of a foreign corporation.

Match the definition with the correct term. a.Foreign base company income b.Foreign personal holding company income c.U.S. shareholder d.Previously taxed income e.De minimis rule f.Passive foreign investment company -Type of entity that removes deferral benefit other than a controlled foreign corporation.

Match the definition with the correct term. a.Indirect credit b.Direct credit c.10 percent d.50 percent e.Section 78 f.Two g. Six h. Overall foreign loss -Direct ownership level before a deemed paid foreign tax credit is allowed a U.S.owner of foreign corporation.

Describe the policy reasons behind treating foreign personal holding company income as Subpart F income to CFCs.Your discussion should include two examples of foreign personal holding company income.

Match the definition with the correct term. a.Foreign base company income b.Foreign personal holding company income c.U.S. shareholder d.Previously taxed income e.De minimis rule f.Passive foreign investment company -Passive type income treated as Subpart F income.

Gain or loss on the exchange of foreign currency must be considered separately from the underlying transaction (e.g.,the purchase or sale of goods).

Liang,an NRA,is sent to the United States by Fu Corporation,her foreign employer.She spends 50 days in the United States and earns $10,000 for a two-month period.This amount is attributable to 40 U.S.working days and 10 foreign working days.Her employer does not have a U.S.trade or business and Liang spends no other time in the U.S.for the tax year.Liang's U.S.-source taxable income is:

Miles,Ltd.,a foreign corporation,has a U.S.branch that earns effectively connected earnings and profits (after income taxes)of $600,000 for the tax year.The branch's U.S.net equity at the beginning of the tax year is $2 million and at the end of the tax year is $2,800,000.Miles is in a nontreaty country.Miles' branch profits tax for the year is:

A Qualified Business Unit of a U.S.corporation that operates in Germany generally uses the U.S.dollar as its functional currency.

U.S.individuals that receive dividends from foreign corporations may not claim the deemed-paid foreign tax credit related to such dividends.

Foreign-source losses within a separate limitation basket are allocated directly against U.S.-source income without regard to income in other separate limitation baskets.

ForCo,a foreign corporation,purchases widgets from USCo,Inc.,its U.S.parent corporation.The widgets are sold by ForCo to another unrelated foreign corporation in the same country as ForCo.The income from sale of the widgets by ForCo is foreign base company sales income.

A U.S.corporation owns a German corporation.The U.S.corporation receives a dividend (non-Subpart F income)of 75,000 euro.The average exchange rate for the year is $1US: 0.6 euro,and the exchange rate on the date of the dividend distribution is $1US: 0.80 euro.The U.S.corporation's exchange gain or loss is: