Exam 25: Taxation of International Transactions

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.

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.

An appropriate transfer price is one that considers the risks, assets, and functions of the persons to whom income is assigned.

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

Quest is organized and operates in the U.K. Its U.S.effectively connected earnings for the taxable year are $900,000 and its net U.S.equity has increased by $40,000. Quest's dividend equivalent amount for the tax year is $860,000.

The following persons own Schlecht Corporation, a foreign corporation. None of the shareholders are related.Subpart F income for the tax year is $300,000.No distributions are made.Which of the following statements is correct?

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:

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

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

Present, Inc., a domestic corporation, owns 60% of the stock of Past, Inc., a foreign corporation.For the current year, Present receives a dividend of $80,000 from Past.Past's pools of E & P (after taxes) and foreign taxes are $4,000,000 and $500,000, respectively.What is Present's total gross income from this dividend if it elects to claim the FTC for deemed-paid foreign taxes?

Kunst, a domestic corporation, generates $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket.Kunst's worldwide taxable income is $1,200,000, and its 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 Kunst's foreign tax credit for the tax year?

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:

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?

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

Section 482 is used by the Treasury to:

USCo, a domestic corporation, reports worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly-owned foreign corporation.ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 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)?

Lang, an NRA who was not a resident of a treaty country, receives taxable dividends of $50,000 from U.S.corporations.Lang does not conduct a U.S.trade or business.Lang's dividends are taxed by the United States through withholding by the payor of:

Qwan, a U.S.corporation, reports $250,000 interest expense for the tax year.None of the interest relates to nonrecourse debt or loans from affiliated corporations.Qwan's U.S.and foreign assets are reported as follows. How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Krebs, Inc., a U.S.corporation, operates an unincorporated branch manufacturing operation in the U.K.Krebs, Inc., reports $900,000 of taxable income from the U.K.branch on its U.S.tax return, along with $1,600,000 of taxable income from its U.S.operations.The U.K.branch income is all general limitation basket income.Krebs 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 Krebs' U.S.tax liability after any allowable foreign tax credits?

Dividends received from Leprechaun, Ltd., an Irish corporation that earns 40% of its income from U.S.business activities, are 40% U.S.-source income.