Exam 9: Taxation of International Transactions

WaterCo, a domestic corporation, purchases inventory for resale from unrelated distributors outside the United States and resells this inventory to customers inside the United States with title passing inside the United States. What is the source of WaterCo's inventory sales income?

The purpose of the deemed paid foreign tax credit is:

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

Certain portfolio income items (i.e., foreign personal holding company income) is included under the tax rules as Subpart F income for controlled foreign corporations ( CFCs). What is the rationale for taxing these income items? Include two examples of foreign personal holding company income.

The source of income received for the use of intangible property is the home country of the owner of the property producing the income.

Assuming all sales are made to unrelated customers outside the CFC's country of incorporation, which of the following types of income earned by a CFC is Subpart F income?

Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign employer. She spends 50 days in the United States and earns $15,000 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:

Which of the following is not a foreign person?

Collins, Inc. received gross foreign-source dividend income of $250,000. Foreign taxes withheld on the dividend were $25,000 and no § 902 credit is available. Its worldwide taxable income for the tax year is $500,000. U.S. tax before the FTC is $175,000. Collins' current year FTC is $87,500.

Which of the following statements is false in regard to the U.S. income tax treaty program?

Waldo, Inc., a U.S. corporation, owns 100% of Orion, Ltd., a foreign corporation. Orion earns only general basket income. During the current year, Orion paid Waldo a $5,000 dividend. The foreign tax credit associated with this dividend is $3,000. The foreign jurisdiction requires a withholding tax of 10%, so Waldo received only $4,500 in cash as a result of the dividend. What is Waldo's total U.S. gross income reported as a result of the $4,500 cash received?

Which of the following statements regarding the U.S. taxation of foreign persons is true?

Scott, Inc., a domestic corporation, receives a dividend of $700,000 from a non-CFC foreign corporation. Deemed-paid foreign taxes attributable to the dividend are $120,000. If Scott elects the FTC, its gross income attributable to this dividend is $700,000.

Which of the following is a principle used in applying income sourcing under U.S. rules?

The § 367 cross-border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income, e.g. §§ 351 and 368. What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.

Magdala is a citizen of Italy and does not have permanent resident status in the United States. During the last three years she has spent a number of days in the United States. Is Magdala treated as a U.S. resident for the current year?

Without the foreign tax credit, double taxation would result when:

Hickman, Inc., a U.S. corporation, operates an unincorporated branch manufacturing operation in the United Kingdom. Hickman, Inc., reports $900,000 of taxable income from the U.K. branch on its U.S. tax return along with $1,300,000 of taxable income from its U.S. operations. Hickman paid $270,000 in U.K. income taxes related to the $900,000 in branch income. Assuming a U.S. tax rate of 35%, what is Hickman's U.S. tax liability after any allowable foreign tax credits?

Which of the following statements regarding the sourcing of gross income is true?

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 not Subpart F foreign base company sales income.