Question 1

Income tax treaties provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

Accepted Answer

A) True 
 B)False

Question 2

During year 4, Josita, an NRA, receives interest income of $50,000 from Talmadge, Inc., an unrelated U.S. corporation. Considering the following facts related to Talmadge's operations, what is the sourcing of the interest income received by Josita? $\begin{array}{lccc} 
& \text { U.S.-source } & \text { Active Foreign } & \text { Total Gross } \
\text { Year } & \text { Income } & \text { Business Income } & \text { Income } \
\text { Year 1 } & \$ 200,000 & \$ 500,000 & \$ 700,000\
\text { Year 2 } & 50,000 & \$ 50,000 & 1,000,000 \
\text { Year 3 } & \underline{100,000} & {900,000}& \underline{1,000,000} \
\text { Totals } & \underline{\$350,000}&\underline{\$ 2,350,000} & \underline{\underline{\$ 2,700,000}} \
\text { Year 4 } & \$ 150,000 & \$ 950,000 & \$ 1,100,000\
\end{array}$

Accepted Answer

The answer of During year 4, Josita, an NRA, receives...

Question 3

Match the definition with the correct term.
-An individual who gives up U.S. citizenship to avoid U.S. income taxes.

Accepted Answer

A) Expatriate 
B) Resident 
C) Nonresident alien 
D) U.S. trade or business 
E) Effectively connected income

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A qualified business unit of a U.S. corporation that operates in Germany generally uses the Euro as its functional currency.

Accepted Answer

A) True 
 B)False

Question 6

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 to free up the suspended FTCs.

Accepted Answer

The answer of Your client holds foreign tax credit (FTC)...

Question 7

ForCo, a foreign corporation, receives interest income of $100,000 from USCo, an unrelated domestic corporation. USCo has historically earned 85% of its income from foreign sources. What amount of ForCo's interest income is
U.S. source?

Accepted Answer

A)  $0 
B)  $50,000 
C)  $85,000 
D)  $100,000

Question 8

In year 1, George renounces his U.S. citizenship and moves to Fredonia, where income tax rates are very low.
George is a multimillionaire and says he "has had it" with high Federal income taxes on wealthy individuals like himself. In year 4, George's U.S.-source income is $1.5 million. That income escapes Federal income taxes.

Accepted Answer

A) True 
 B)False

Question 9

U.S. income tax treaties typically:

Accepted Answer

A)  Provide for taxation exclusively by the source country. 
B)  Provide for taxation exclusively by the country of residence. 
C)  Provide rules by which multinational taxpayers avoid double taxation. 
D)  Provide that the country with the highest tax rate will be allowed exclusive tax collection rights.

Question 10

Match the definition with the correct term.
-U.S. taxpayers earning income outside the United States.

Accepted Answer

A) Inbound 
B) Outbound 
C) Allocation and apportionment 
D) Qualified business unit 
E) Tax haven
F)Income tax treaty 
G)Section 482

Question 11

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 $315,000. What is USCo's allowed foreign tax credit?

Accepted Answer

A)  $70,000 
B)  $147,000 
C)  $315,000 
D)  $385,000

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

The transfer of the assets of a U.S. corporation's foreign branch to a newly formed foreign corporation is always tax deferred under § 351.

Accepted Answer

A) True 
 B)False

Question 14

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

Question 15

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?

Accepted Answer

A)  Yes, because Magdala was present in the United States at least 31 days during the current year and 195 days during the current and prior two years (using the appropriate fractions for the prior years). 
B)  No, because Magdala is a citizen of Italy. 
C)  No, because Magdala was not present in the United States at least 183 days during the current year. 
D)  No, because although Magdala 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.

Question 16

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 17

USCo, a U.S. 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)?

Accepted Answer

A)  $500,000 
B)  $200,000 
C)  $100,000 
D)  $20,000 
E)  $0.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  Dividends are sourced based on the residence of the recipient. 
B)  Dividends from non-U.S. corporations are always foreign source. 
C)  Dividends from non-U.S. corporations are foreign-source only to the extent that 80% or more of the non-U.S. corporation's gross income for the three years preceding the year of the dividend payment was effectively connected with the conduct of a non-U.S. trade or business. 
D)  A percentage of dividends from non-U.S. corporations are U.S. source to the extent that 25% or more of the non-U.S. corporation's gross income for the three years preceding the year of the dividend payment was effectively connected with the conduct of a U.S. trade or business.

Question 20

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

Accepted Answer

A)  The rules should be acceptable to both countries. 
B)  The rules should favor the U.S. Treasury. 
C)  The rules should favor the treasury of the non-U.S. country. 
D)  The rules should apply to income items only; deductions need not be sourced in this way.

Exam 25: Taxation of International Transactions

Income tax treaties provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

Match the definition with the correct term. -An individual who gives up U.S. citizenship to avoid U.S. income taxes.

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

A qualified business unit of a U.S. corporation that operates in Germany generally uses the Euro as its functional currency.

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 to free up the suspended FTCs.

ForCo, a foreign corporation, receives interest income of $100,000 from USCo, an unrelated domestic corporation. USCo has historically earned 85% of its income from foreign sources. What amount of ForCo's interest income is U.S. source?

U.S. income tax treaties typically:

Match the definition with the correct term. -U.S. taxpayers earning income outside the United States.

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 $315,000. What is USCo's allowed foreign tax credit?

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.

The transfer of the assets of a U.S. corporation's foreign branch to a newly formed foreign corporation is always tax deferred under § 351.

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.

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.

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

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

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