Question 1

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

Accepted Answer

A) Repatriating more foreign income to the United States in the year there is an excess limitation. 
B) Deducting the excess foreign taxes that do not qualify for the credit. 
C) Generating "same basket" foreign-source income that is subject to a tax rate lower than the U.S.tax rate. 
D) Generating "same basket" foreign-source income that is subject to a tax rate higher than the U.S.tax rate. 
A) Repatriating more foreign income to the United States in the year there is an excess limitation. 
B) Deducting the excess foreign taxes that do not qualify for the credit. 
C) Generating "same basket" foreign-source income that is subject to a tax rate lower than the U.S.tax rate. 
D) Generating "same basket" foreign-source income that is subject to a tax rate higher than the U.S.tax rate.

Question 4

Which of the following statements regarding the taxation of U.S.real property gains recognized by foreign persons not engaged in a U.S.trade or business is false? Gains from the disposition of U.S.real property are:

Accepted Answer

A) Taxed to foreign persons notwithstanding the general exemption of capital gains from U.S.taxation. 
B) Taxed to foreign persons without regard to whether such foreign persons are engaged in a U.S.trade or business. 
C) Taxed in the U.S.because such gains are treated as if they are effectively connected to a U.S.trade or business. 
D) Not taxed to foreign persons because real property gains are specifically exempt from U.S.taxation. 
A) Taxed to foreign persons notwithstanding the general exemption of capital gains from U.S.taxation. 
B) Taxed to foreign persons without regard to whether such foreign persons are engaged in a U.S.trade or business. 
C) Taxed in the U.S.because such gains are treated as if they are effectively connected to a U.S.trade or business. 
D) Not taxed to foreign persons because real property gains are specifically exempt from U.S.taxation.

Question 5

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?

Accepted Answer

A) 100% U.S.source. 
B) 100% foreign source. 
C) 50% U.S.source and 50% foreign source. 
D) 50% foreign source and 50% sourced based on location of manufacturing assets. 
A) 100% U.S.source. 
B) 100% foreign source. 
C) 50% U.S.source and 50% foreign source. 
D) 50% foreign source and 50% sourced based on location of manufacturing assets.

Question 6

Kipp, a U.S.shareholder under the CFC provisions, owns 40% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000, Kipp is not taxed on receipt of a constructive dividend of $80,000 because he doesn't own more than 50% of the CFC.

Accepted Answer

A) True 
 B)False

Question 7

Freda was born and continues to live in Uruguay. She exports widgets to U.S.customers. The U.S.does not have in force an income tax treaty with Urugauy. Freda's net U.S.income from the widgets is subject to a flat 30% Federal income tax rate.

Accepted Answer

A) True 
 B)False

Question 8

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?

Accepted Answer

A) $0. 
B) $19,200. 
C) $60,800. 
D) $80,000. 
A) $0. 
B) $19,200. 
C) $60,800. 
D) $80,000.

Question 9

Unused foreign tax credits are carried back one year and then forward 10 years.

Accepted Answer

A) True 
 B)False

Question 10

Xenia, Inc., a U.S.shareholder, owns 100% of Fredonia, a CFC.Xenia receives a $3 million cash distribution from Fredonia.Fredonia's E & P is composed of the following amounts.   Xenia recognizes a taxable dividend of:

Accepted Answer

A) $3 million. 
B) $2.5 million. 
C) $1.5 million. 
D) $1 million. 
E) $0. 
A) $3 million. 
B) $2.5 million. 
C) $1.5 million. 
D) $1 million. 
E) $0.

Question 11

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha.The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien.Julio recognizes foreign-source income from the sale because his home country is not the U.S.

Accepted Answer

A) True 
 B)False

Question 12

A domestic corporation is one whose assets are primarily (> 50%) located in the U.S.

Accepted Answer

A) True 
 B)False

Question 13

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations.Ferrell owns the other 60 percent of Shane Corporation.Both Shane and Ferrell are CFCs.

Accepted Answer

A) True 
 B)False

Question 14

Peanut, Inc., a domestic corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of $5,000 are withheld.Peanut's worldwide taxable income is $900,000, and its U.S.Federal income tax liability before FTC is $270,000.What is Peanut's foreign tax credit?

Accepted Answer

A) $500,000. 
B) $275,000. 
C) $150,000. 
D) $5,000. 
A) $500,000. 
B) $275,000. 
C) $150,000. 
D) $5,000.

Question 15

Which of the following foreign taxes paid by a U.S.corporation may be eligible for the foreign tax credit?

Accepted Answer

A) Real property taxes. 
B) Value added taxes. 
C) Sales taxes. 
D) Dividend withholding taxes. 
A) Real property taxes. 
B) Value added taxes. 
C) Sales taxes. 
D) Dividend withholding taxes.

Question 16

The "residence of seller" rule is used in determining the sourcing of all gross income and deductions of a U.S.multinational business.

Accepted Answer

A) True 
 B)False

Question 17

A tax haven often is:

Accepted Answer

A) A country with high internal income taxes. 
B) A country with no or low internal income taxes. 
C) A country without income tax treaties. 
D) A country that prohibits "treaty shopping." 
A) A country with high internal income taxes. 
B) A country with no or low internal income taxes. 
C) A country without income tax treaties. 
D) A country that prohibits "treaty shopping."

Question 18

Waltz, Inc., a U.S.taxpayer, pays foreign taxes of $50,000 on foreign-source general basket income of $90,000. Waltz's worldwide taxable income is $450,000, on which it owes U.S.taxes of $157,500 before FTC. Waltz's FTC is $50,000.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following transactions, if entered into by an NRA, is not subject to U.S.taxation?

Accepted Answer

A) Sale of a commercial building located in Houston, Texas, and owned directly by the NRA. 
B) Sale of stock of a foreign corporation whose only asset is a U.S.building. 
C) Sale of stock of a domestic corporation whose only asset is undeveloped U.S.real estate. 
D) Sale of partnership interest.The partnership's assets predominantly are made up of U.S.real estate. 
A) Sale of a commercial building located in Houston, Texas, and owned directly by the NRA. 
B) Sale of stock of a foreign corporation whose only asset is a U.S.building. 
C) Sale of stock of a domestic corporation whose only asset is undeveloped U.S.real estate. 
D) Sale of partnership interest.The partnership's assets predominantly are made up of U.S.real estate.

Question 20

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

Accepted Answer

A) Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income. 
B) Foreign persons with any U.S.-source income are taxed on net investment income (after expenses). 
C) Foreign persons are not subject to U.S.tax if not engaged in a U.S.trade or business. 
D) Foreign persons with only U.S.-source investment income are exempt from U.S.tax. 
E) None of the above statements are true. 
A) Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income. 
B) Foreign persons with any U.S.-source income are taxed on net investment income (after expenses). 
C) Foreign persons are not subject to U.S.tax if not engaged in a U.S.trade or business. 
D) Foreign persons with only U.S.-source investment income are exempt from U.S.tax. 
E) None of the above statements are true.

Exam 25: Taxation of International Transactions

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

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

A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

Which of the following statements regarding the taxation of U.S.real property gains recognized by foreign persons not engaged in a U.S.trade or business is false? Gains from the disposition of U.S.real property are:

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?

Kipp, a U.S.shareholder under the CFC provisions, owns 40% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000, Kipp is not taxed on receipt of a constructive dividend of $80,000 because he doesn't own more than 50% of the CFC.

Freda was born and continues to live in Uruguay. She exports widgets to U.S.customers. The U.S.does not have in force an income tax treaty with Urugauy. Freda's net U.S.income from the widgets is subject to a flat 30% Federal income tax rate.

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?

Unused foreign tax credits are carried back one year and then forward 10 years.

Xenia, Inc., a U.S.shareholder, owns 100% of Fredonia, a CFC.Xenia receives a $3 million cash distribution from Fredonia.Fredonia's E & P is composed of the following amounts. Xenia recognizes a taxable dividend of:

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha.The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien.Julio recognizes foreign-source income from the sale because his home country is not the U.S.

A domestic corporation is one whose assets are primarily (> 50%) located in the U.S.

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations.Ferrell owns the other 60 percent of Shane Corporation.Both Shane and Ferrell are CFCs.

Peanut, Inc., a domestic corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of $5,000 are withheld.Peanut's worldwide taxable income is $900,000, and its U.S.Federal income tax liability before FTC is $270,000.What is Peanut's foreign tax credit?

Which of the following foreign taxes paid by a U.S.corporation may be eligible for the foreign tax credit?

The "residence of seller" rule is used in determining the sourcing of all gross income and deductions of a U.S.multinational business.

A tax haven often is:

Waltz, Inc., a U.S.taxpayer, pays foreign taxes of $50,000 on foreign-source general basket income of $90,000. Waltz's worldwide taxable income is $450,000, on which it owes U.S.taxes of $157,500 before FTC. Waltz's FTC is $50,000.

Which of the following transactions, if entered into by an NRA, is not subject to U.S.taxation?

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

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

Income Taxation of Trusts and Estates

Filters