Exam 9: Taxation of International Transactions

Subpart F income includes portfolio income like dividends and interest.

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

A U.S. business conducts international communications activities between the U.S. and Spain. The resulting income is sourced 100% in the United States.

LocalCo merges into HeirCo, a non-U.S. entity, in a transaction that would qualify as a "Type A" reorganization. The resulting realized gain is tax-deferred under U.S. income tax law, using §§ 351 and 368.

Discuss the primary purposes of income tax treaties.

A nonresident alien with U.S.-source income effectively connected with a U.S. trade or business can take effectively connected deductions against that income.

USCo, a domestic corporation, receives $100,000 of foreign-source passive income on which foreign taxes of $5,000 are withheld. Its worldwide taxable income is $700,000 and its U.S. tax liability before the foreign tax credit is $245,000. What is USCo's allowed foreign tax credit?

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 gross income related to the Starke dividend?

GlobalCo, a foreign corporation not engaged in a U.S. trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 24% of its income from foreign sources. How much of GlobalCo's interest income is U.S. source?

Yvonne is a citizen of France 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 Yvonne treated as a U.S. resident for the current year?

The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

Jilt, a non-U.S. corporation, not resident in a treaty country, operates a U.S. branch that earns effectively connected E & P of $4 million for the tax year. The branch increases its investments in U.S. property (its U.S. net equity) by $1,600,000. The branch pays a U.S. corporate income tax of $2,153,846. Jilt's branch profits tax is:

"Inbound" and "offshore" transfers are exempt from taxation under § 367.

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

The transfer of the assets of a U.S. corporation's foreign branch to a newly formed foreign corporation is always tax deferred under § 351.

USCo, a domestic corporation, has worldwide taxable income of $1,500,000, including a $300,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo's post-1986 undistributed earnings and profits are $16 million and it has paid $10 million of foreign income taxes attributable to these earnings. What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

Section 482 is used by the Treasury to:

Which of the following situations requires the filing of an information return with the U.S. government?

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?