Question 1

International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.

Accepted Answer

A) True 
 B)False

Question 2

Supplies, Inc. does business in Georgia (6% tax rate) and Alabama (5% tax rate). All other factors being equal, the company will minimize state taxes if it increases the compensation paid to its employees in Alabama.

Accepted Answer

A) True 
 B)False

Question 3

The deemed paid foreign tax credit is available only to U.S. corporations that own 30% or more of the voting stock of a foreign corporation that paid dividends during the taxable year.

Accepted Answer

A) True 
 B)False

Question 4

Korn, Co. was incorporated in Delaware. It has production, distribution, and sales facilities in Kansas and Nebraska. All of Korn's customers reside in Kansas or Nebraska. Assume that both states use the UDITPA formula for apportionment of income. The corporation is investing in new equipment that cost $900,000. The equipment could be used in either the Kansas or Nebraska production facilities. Assume that Kansas' corporate income tax rate is 7% and Nebraska's is 8.5%. Should the equipment be placed in Kansas or Nebraska to minimize Korn's state income tax?

Accepted Answer

A)  Kansas. 
B)  Nebraska. 
C)  Either state, because state income tax will be unaffected by this choice. 
D)  Korn should place the equipment in a third state in which it does not have nexus.

Question 5

The foreign tax credit is available for income taxes paid to a foreign country.

Accepted Answer

A) True 
 B)False

Question 6

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

Accepted Answer

A) True 
 B)False

Question 7

In the United States, corporations are subject only to taxes imposed by the federal government.

Accepted Answer

A) True 
 B)False

Question 8

Pogo, Inc., which has a 34 percent marginal tax rate, owns 50 percent of the stock of a CFC. At the beginning of the year, Pogo's basis in the CFC stock was $2 million. The CFC's current year earnings were $750,000 of which $600,000 was subpart F income. The CFC paid no foreign income tax and distributed no dividends.
a. Explain Pogo's U.S. tax consequences with respect to its investment in the CFC.
b. Compute Pogo's basis in its CFC stock at the end of the year.

Accepted Answer

The answer of Pogo, Inc., which has a 34 percent...

Question 9

Sunny, a California corporation, earned the following income this year.

Sunny owns 100% of Sun de Sud, a foreign corporation operating a business in Country M and paying foreign income tax at a 50% rate. Sunny paid $124,000 foreign income tax to Country L, $203,000 income tax to Country Q, and no foreign withholding tax on its Sun de Sud dividends. Assuming a 34% tax rate, compute Sunny's U.S. tax.

Accepted Answer

The answer of Sunny, a California corporation, earned the following...

Question 10

A U.S. parent corporation that receives a dividend from a wholly-owned foreign subsidiary that pays a 45% income tax to its home country does not owe any U.S. tax on the dividend.

Accepted Answer

A) True 
 B)False

Question 11

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S. rate.

Accepted Answer

A) True 
 B)False

Question 12

Albany, Inc. does business in states C and D. State C apportions income using an equally-weighted three-factor formula; state D uses an apportionment formula that double-weights the sales factor. Albany's before tax income is $3,000,000, and its sales, payroll, and property factors are as follows.

Accepted Answer

A)  State C, $1,100,000; State D, $1,800,000 
B)  State C, $1,100,000; State D, $1,900,000 
C)  State C, $1,200,000; State D, $1,800,000 
D)  State C, $1,300,000; State D, $1,700,001

Question 13

Harris Corporation's before-tax income was $400,000. It does business entirely in Pennsylvania, which has a 6% corporate income tax. Compute Harris' federal income tax.

Accepted Answer

A)  $24,000 
B)  $136,000 
C)  $131,600 
D)  $127,840

Question 14

Tri-State's, Inc. operates in Arkansas, Oklahoma, and Kansas. Assume that each state has adopted the UDITPA formula. During the corporation's tax year ended December 31, the apportionment data indicated:  Tri-State's income for the current year is $250,000. Approximately how much income will be taxed by Oklahoma?

Accepted Answer

A)  $250,000 
B)  $218,125 
C)  $44,375 
D)  $173,750

Question 15

The UDITPA formula for state income tax apportionment consists of three factors: sales, payroll, and profit.

Accepted Answer

A) True 
 B)False

Question 16

Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

Accepted Answer

A)  Country X operations are conducted through a domestic subsidiary included in Galaxy's consolidate tax return. 
B)  Country X operations are conducted through a foreign subsidiary that paid no dividends. 
C)  Country X operations are conducted through a foreign subsidiary that distributed 100% of its after-tax earnings as a dividend to Galaxy. 
D)  Country X operations are conducted through a foreign branch.

Question 17

The United States has jurisdiction to tax income earned by any foreign corporation that is a controlled subsidiary of a U.S. parent corporation.

Accepted Answer

A) True 
 B)False

Question 18

The income earned by a foreign branch operation of a U.S. corporation is taxable by the United States only when repatriated.

Accepted Answer

A) True 
 B)False

Question 19

Lilly Inc., a U.S. multinational with a 34% marginal tax rate, conducts a branch operation in a foreign country with a 25% income tax. This year, the branch generated $500,000 taxable income. What is the total tax burden (domestic and foreign) on the earnings of the branch operation?

Accepted Answer

A)  $170,000 
B)  $125,000 
C)  $295,000 
D)  $45,000

Question 20

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.

Accepted Answer

A) True 
 B)False

Exam 13: Jurisdictional Issues in Business Taxation

International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.

Supplies, Inc. does business in Georgia (6% tax rate) and Alabama (5% tax rate). All other factors being equal, the company will minimize state taxes if it increases the compensation paid to its employees in Alabama.

The deemed paid foreign tax credit is available only to U.S. corporations that own 30% or more of the voting stock of a foreign corporation that paid dividends during the taxable year.

The foreign tax credit is available for income taxes paid to a foreign country.

Cross-crediting allows multinational corporations to use excess credits generated in low- tax jurisdictions to offset excess limitations generated in high-tax jurisdictions.

In the United States, corporations are subject only to taxes imposed by the federal government.

A U.S. parent corporation that receives a dividend from a wholly-owned foreign subsidiary that pays a 45% income tax to its home country does not owe any U.S. tax on the dividend.

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S. rate.

Albany, Inc. does business in states C and D. State C apportions income using an equally-weighted three-factor formula; state D uses an apportionment formula that double-weights the sales factor. Albany's before tax income is $3,000,000, and its sales, payroll, and property factors are as follows.

Harris Corporation's before-tax income was $400,000. It does business entirely in Pennsylvania, which has a 6% corporate income tax. Compute Harris' federal income tax.

The UDITPA formula for state income tax apportionment consists of three factors: sales, payroll, and profit.

Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?

The United States has jurisdiction to tax income earned by any foreign corporation that is a controlled subsidiary of a U.S. parent corporation.

The income earned by a foreign branch operation of a U.S. corporation is taxable by the United States only when repatriated.

Lilly Inc., a U.S. multinational with a 34% marginal tax rate, conducts a branch operation in a foreign country with a 25% income tax. This year, the branch generated $500,000 taxable income. What is the total tax burden (domestic and foreign) on the earnings of the branch operation?

Non-resident firms selling tangible goods to in-state residents can use P.L. 86-272 to avoid having income tax nexus in a state.