Question 1

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is false in regard to the U.S. income tax treaty program?

Accepted Answer

A) There are about 70 bilateral income tax treaties between the U.S. and other countries. 
B) Tax treaties generally provide for primary taxing rights that require the other treaty partner to allow a credit for the taxes paid on the twice-taxed income. 
C) U.S. income tax treaties are written to set up a "network" of up to five foreign countries that are covered by the treaty language. 
D) None of the above statements is false.

Question 3

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

Accepted Answer

A) They allow for a deferral of non-U.S.-source income from U.S. taxation. 
B) They provide certainty as to the U.S. income tax treatment of cross-border transactions. 
C) They prevent shifting of income from the U.S. to high-tax non-U.S. jurisdictions. 
D) They prevent shifting of income from the U.S. to low-tax non-U.S. jurisdictions.

Question 4

Which of the following persons typically is concerned with the U.S.-sourcing rules for gross income?

Accepted Answer

A) U.S. persons with only U.S. activities. 
B) U.S. persons that earn only tax-exempt income. 
C) U.S. persons with U.S. and non-U.S. activities. 
D) Non-U.S. persons with only non-U.S. activities.

Question 5

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. Current year - 150 days
First prior year - 150 days
Second prior year - 90 days
Is Yvonne treated as a U.S. resident for the current year?

Accepted Answer

A) No, because Yvonne is a citizen of France. 
B) No, because Yvonne was not present in the United States at least 183 days during the current year. 
C) No, because although Yvonne was present in the United States at least 31 days during the current year, she was not present at least 183 days in a single year during the current or prior two years. 
D) Yes, because Yvonne was present in the United States at least 31 days during the current year and 215 days during the current and prior two years (using the appropriate fractions for the prior years).

Question 6

Which of the following statements regarding income sourcing is correct?

Accepted Answer

A) Everything else being equal, a larger foreign-source income decreases the foreign tax credit limitation for U.S. persons. 
B) Everything else being equal, a larger foreign-source income increases the foreign tax credit limitation for U.S. persons. 
C) Everything else being equal, a larger U.S.-source income increases the foreign tax credit limitation for U.S. persons. 
D) Everything else being equal, changing foreign-source income does not change the foreign tax credit limitation for U.S. persons.

Question 7

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-Foreign tax credit allowed when a foreign corporation makes a distribution to its parent corporation.

Accepted Answer

A) Indirect credit 
B) Direct credit 
C) One 
D) Two 
E) Ten
F)Twenty
G)Gross-up (§ 78)
H)Overall foreign loss

Question 8

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

Accepted Answer

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

Question 9

During the current year, USACo (a domestic corporation) sold equipment to FrenchCo, a foreign corporation, for $350,000, with title passing to the buyer in France. USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment, all of which were allocated to U.S.-source income. USACo's adjusted basis in the equipment is $20,000 on the date of sale. What is the source of the $330,000 gain on the sale of this equipment?

Accepted Answer

A) $330,000 foreign source. 
B) $330,000 U.S. source. 
C) $250,000 foreign source and $80,000 U.S. source. 
D) $250,000 U.S. source and $80,000 foreign source.

Question 10

Gains on the sale of U.S. real property held directly or indirectly through U.S. stock ownership by NRAs and foreign corporations are subject to tax at capital gains rates under FIRPTA.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

Accepted Answer

A) Intangibles income. 
B) Passive income. 
C) Business income. 
D) None of the above are separate FTC limitation baskets. 
E) All of the above are separate FTC limitation baskets.

Question 12

The sourcing rules of Federal income taxation apply to deductions as well as to income items.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements regarding a non-U.S. person's U.S. tax consequences is true?

Accepted Answer

A) Non-U.S. persons may be subject to withholding tax on U.S.-source investment income even if not engaged in a U.S. trade or business. 
B) Non-U.S. persons are subject to U.S. income or withholding tax only if they are engaged in a U.S. trade or business. 
C) Non-U.S. persons are not taxed on gains from U.S. real property as long as such property is not used in a U.S. trade or business. 
D) Once a non-U.S. person is engaged in a U.S. trade or business, the non-U.S. person's worldwide income is subject to U.S. taxation.

Question 14

Kilps, a U.S. corporation, receives a $200,000 dividend from a 20% owned foreign corporation. The deemed-paid taxes attributable to this dividend are $40,000 and foreign taxes withheld on remittance of the dividend are $30,000. Kilps's U.S. tax liability before the FTC is $350,000, the gross dividend income is $240,000, and Kilps's worldwide taxable income is $1 million. Kilps's foreign tax credit for the taxable year is:

Accepted Answer

A) $84,000. 
B) $70,000. 
C) $40,000. 
D) $30,000.

Question 15

Generally, accrued foreign income taxes are translated at the:

Accepted Answer

A) Exchange rate when the taxes are paid. 
B) Exchange rate on the date when the taxes are accrued. 
C) Average exchange rate for the tax year to which the taxes relate. 
D) Average exchange rate for the last five tax years.

Question 16

AirCo, a domestic corporation, purchases inventory for resale from unrelated distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States. What is the source of AirCo'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.

Question 17

The United States has in force income tax treaties with about 70 countries.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) Nondiscrimination tax. 
B) Windfall U.S. profits tax. 
C) Dividend repatriation tax. 
D) Branch profits tax.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

A "U.S. shareholder" for purposes of CFC classification is any U.S. person who owns directly, indirectly, and constructively at least 50% of the voting power of a foreign corporation.

Accepted Answer

A) True 
 B)False

Exam 9: Taxation of International Transactions

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

Which of the following statements is false in regard to the U.S. income tax treaty program?

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

Which of the following persons typically is concerned with the U.S.-sourcing rules for gross income?

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. -Foreign tax credit allowed when a foreign corporation makes a distribution to its parent corporation.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

Gains on the sale of U.S. real property held directly or indirectly through U.S. stock ownership by NRAs and foreign corporations are subject to tax at capital gains rates under FIRPTA.

Which of the following is a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

The sourcing rules of Federal income taxation apply to deductions as well as to income items.

Which of the following statements regarding a non-U.S. person's U.S. tax consequences is true?

Generally, accrued foreign income taxes are translated at the:

AirCo, a domestic corporation, purchases inventory for resale from unrelated distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States. What is the source of AirCo's inventory sales income?

The United States has in force income tax treaties with about 70 countries.

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

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

A "U.S. shareholder" for purposes of CFC classification is any U.S. person who owns directly, indirectly, and constructively at least 50% of the voting power of a foreign corporation.