Exam 25: Taxation of International Transactions

To reduce current income taxation, a U.S. person might transfer to a subsidiary in a tax haven country:

Jaime received gross foreign-source dividend income of $250,000. Foreign taxes withheld on the dividend were $25,000. Jaime's total U.S. tax liability is $840,000 (the 21% marginal tax rate applies). Jaime's current year FTC is $87,500.

Match the definition with the correct term. a. Inbound b. Outbound c. Allocation and apportionment d. Qualified business unit e. Tax haven f. Income tax treaty g. Section 482 -U.S. taxpayers earning income outside the United States.

Kunst, a U.S. 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?

Which of the following statements regarding income sourcing is correct?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. a. Foreign base company income b. Foreign personal holding company income c. Controlled foreign corporation d. U.S. shareholder e. Previously taxed income f. More than 10 percent g. More than 50 percent h. More than 80 percent -A non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

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

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

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

Dividends received from Murdock Corp., a corporation organized in Sustenato that earns 70% of its income from U.S. business activities, are 70% U.S.-source income.

U.S. income tax treaties typically:

When a business taxpayer "goes international," the first step usually is to create an overseas branch sales office.

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.

ForCo, a foreign corporation not engaged in a U.S. trade or business, recognizes a $3 million gain from the sale of land located in the United States. The amount realized on the sale was $50 million. Absent any exceptions, what is the required withholding amount on the part of the purchaser of this land?

SilverCo, a U.S. corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. SilverCo transfers $200 in Yen (basis = $150) and $900 in land (basis = $925) 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?

Which of the following is a principle used in applying the income-sourcing rules under U.S. tax law?

Flapp Corporation, a U.S. corporation, conducts all of its transactions in the U.S. dollar. It sells inventory for $1 million to a Canadian company when the exchange rate is $1US: $1.2Can. The Canadian company pays for the inventory when the exchange rate is $1US: $1.25Can. What is Flapp's exchange gain or loss on this sale?

Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign employer. She spends 50 days in the United States and earns $20,000 for a two-month period. This amount is attributable to 40 U.S. working days and 10 non-U.S. working days. Her employer does not have a U.S. trade or business and Liang spends no other time in the U.S. for the tax year. Liang's U.S.-source taxable income is:

ForCo, a subsidiary of a U.S. corporation incorporated in Belgium, manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany. The income from the sale of widgets is not Subpart F foreign base company sales income.

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?