Exam 9: Taxation of International Transactions

The U.S. system for taxing income earned inside its borders by non-U.S. persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

An individual who gives up U.S. citizenship to avoid U.S. income taxes.

Goolsbee, Inc., a U.S. corporation, generates U.S.­source and foreign­source 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.

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. Current year - 120 days First prior year - 150 days Second prior year - 150 days Is Magdala treated as a U.S. resident for the current year?

Given the following information, determine whether Greta, an alien, is a U.S. resident for Year 3. Greta cannot establish a tax home in or a closer connection to a foreign country.

Which of the following determinations requires knowing the amount of one's foreign­source gross income?

Jokerz, a CFC of a U.S. parent, generated $80,000 Subpart F foreign base company services income in its first year of operations. The next year, Jokerz distributes $50,000 cash to the parent, from those service profits. The parent is taxed on $0 in the first year (tax deferral rules apply) and $50,000 in the second year.

USCo, a U.S. corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld. Its worldwide taxable income is $1,500,000 and its U.S. tax liability before the foreign tax credit is $525,000. What is USCo's allowed foreign tax credit?

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 Uruguay. Freda's net U.S. income from the widgets is subject to a flat 30% Federal income tax rate.

Chipper, Inc., a U.S. corporation, reports worldwide taxable income of $1 million, including a $300,000 dividend from Emma, Inc., a foreign corporation. Chipper's U.S. tax liability before FTC is $340,000. Chipper owns 20% of Emma. Emma's E & P after taxes is $8 million and it has paid foreign taxes of $2 million attributable to that E & P. If Chipper elects the FTC, its U.S. gross income with regard to the dividend from Emma is:

Dividends received from a domestic corporation are totally U.S. source:

In working with the foreign tax credit, a U.S. corporation may be able to alleviate the problem of excess foreign taxes by:

A non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

Your client holds foreign tax credit (FTC) carryforwards, i.e., it is in an "excess credit" position. Give at least three planning ideas that the client should implement, so as to free up the suspended FTCs.

BrazilCo, Inc., a foreign corporation with a U.S. trade or business, has U.S.-source income as follows. Dividend income from unrelated investment activities $ 50,000 Net U.S.-source effectively connected income 600,000 Determine BrazilCo's total U.S. tax liability for the year, assuming a 35% corporate rate and no tax treaty. BrazilCo leaves its U.S. branch profits invested in the United States, and it does not otherwise repatriate any of its U.S. assets during the year.

Wood, a U.S. corporation, owns 30% of Hout, a foreign corporation. The remaining 70% of Hout is owned by other foreign corporations not controlled by Wood. Hout's functional currency is the euro. Wood receives a 50,000€ distribution from Hout. If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1, the exchange rate at year end is .95€: $1, and on the date of the dividend payment the exchange rate is 1.1€: $1, what is Wood's tax result from the distribution?

In which of the following independent situations would Slane, a foreign corporation, be classified as a controlled foreign corporation? The Slane stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.

Which of the following statements regarding the translation of foreign income taxes is true?

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

Rule that requires determination of the dividend equivalent amount.