Exam 9: Taxation of International Transactions

Amber, Inc., a domestic corporation receives a $150,000 cash dividend from Starke, Ltd. Amber owns 15% of Starke. Starke's post-1986 E & P is $2 million and it has paid foreign taxes of $1 million attributable to that E & P. What is Amber's foreign tax credit related to the Starke dividend?

Which of the following is a special tax regime imposed on certain foreign persons engaged in a U.S. trade or business?

A nonresident alien is defined as someone who is not a citizen or resident of the U.S.

In allocating interest expense between U.S. and foreign sources, a taxpayer must use the tax basis of the income-producing assets.

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

WorldCo, a foreign corporation not engaged in a U.S. trade or business, receives $50,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 78% of its income from foreign sources. How much of WorldCo's interest income is U.S. source?

USCo, a domestic corporation, receives $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket. Worldwide taxable income is $1,200,000 and the U.S. tax liability before FTC is $420,000. Foreign taxes attributable to the general income basket are $60,000 and to the passive income are $4,000. What is USCo's foreign tax credit for the tax year?

The United States has income tax treaties with only members of the European Union.

The following income of a foreign corporation is not subject to the regular U.S. corporate income tax rates.

Monika, a nonresident alien, is employed by GlobalCo, a foreign corporation. Monika works in the United States for 32 days during the year, receiving a gross salary of $2,900 for this period. GlobalCo is not engaged in a U.S. trade or business. Under the "commercial traveler" exception, the $2,900 is not classified as U.S.-source income.

OutCo, a controlled foreign corporation, earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies. All of the unrelated companies are located in OutCo's country of incorporation. OutCo's Subpart F income for the year is:

BlueCo, a domestic corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. BlueCo transfers $200 in inventory (basis = $50) and $900 in land (basis = $950) to GreenCo. GreenCo uses these assets in carrying on a trade or business outside the United States. What gain or loss, if any, is recognized as a result of this transaction?

During the current year, USACo (a domestic corporation) sold equipment to FrenchCo, a foreign corporation, for $350,000, with title passing to the buyer in France. USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment, all of which were allocated to U.S.-source income. USACo's adjusted basis in the equipment is $20,000 on the date of sale. What is the source of the $330,000 gain on the sale of this equipment?

Ridge, Inc., a domestic corporation, reports worldwide taxable income of $800,000, including a $300,000 dividend from Emma, Inc., a foreign corporation. Ridge's U.S. tax liability before FTC is $280,000. Ridge owns 20% of Emma. Emma's post-1986 E & P after taxes is $8 million and it has paid foreign taxes of $4 million attributable to that E & P. If Ridge elects the FTC, its U.S. gross income with regard to the dividend from Emma is:

Goolsbee, Inc., a domestic corporation, generates U.S.-source and foreign-source gross income. Goolsbee's assets (tax book value) are as follows. Goolsbee incurs interest expense of $200,000. Using the asset method and the tax book value, apportion interest expense to foreign-source income.

Which of the following statements best describes the purpose of § 482, under which the Treasury can reallocate income and deductions among related taxpayers?

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

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

Freiburg, Ltd., a foreign corporation, operates a U.S. branch that reports effectively connected U.S. earnings and profits (after income taxes) of $800,000 for the tax year. The branch's U.S. net equity at the beginning of the tax year is $3 million and at the end of the tax year is $2.4 million. Freiburg is organized in a nontreaty country. Compute Freiburg's branch profits tax for the year.

With respect to income generated by non-U.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.