Question 1

OutCo,a controlled foreign corporation in Meena,earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies.All of the dividend payors are located in Meena.OutCo's Subpart F income for the year is:

Accepted Answer

A) $0. 
B) $0 only if OutCo is engaged in a trade or business in Meena. 
C) $600,000. 
D) $600,000 only if OutCo is engaged in a trade or business in Meena.

Question 2

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.  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 3

USCo,a domestic corporation,reports worldwide taxable income of $1,500,000,including a $300,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's undistributed earnings and profits are $15 million and it has paid $10 million 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) $200,000. 
B) $300,000. 
C) $10 million. 
D) $15 million.

Question 4

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 a U.S.corporation are U.S.source,without regard to whether the U.S.corporation is an 80-20 company. 
C) Dividends from a U.S.corporation are foreign-source,if the U.S.corporation is an 80-20 company. 
D) Dividends from a U.S.corporation are foreign-source based on the percentage of foreign-source income earned by the U.S.payor.

Question 5

ForCo,a foreign corporation,purchases widgets from USCo,Inc. ,its U.S.parent corporation.The widgets are sold by ForCo to another unrelated foreign corporation in the same country as ForCo.The income from sale of the widgets by ForCo is not Subpart F foreign base company sales income.

Accepted Answer

A) True 
 B)False

Question 6

The source of income received for the use of intangible property is the home country of the owner of the property producing the income.

Accepted Answer

A) True 
 B)False

Question 7

Flapp Corporation,a domestic 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?

Accepted Answer

A) Flapp does not have a foreign currency exchange gain or loss,since it conducts all of its transactions in the U.S.dollar. 
B) Flapp's account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can. )and it collects on the receivable when the exchange rate is $1US: $1.25Can.Flapp has an exchange gain of $50,000. 
C) Flapp's account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can. ).It collects on the receivable at $1US: $1.25Can.Flapp has an exchange loss of $5,000. 
D) Flapp's foreign currency exchange loss is $50,000.

Question 8

Which of the following statements regarding income sourcing is not correct?

Accepted Answer

A) U.S.persons benefit from earning low-tax foreign-source income. 
B) Foreign persons generally benefit from avoiding U.S.-source income classification. 
C) U.S.persons are not concerned with source of income because all their income is subject to U.S.tax under a worldwide system. 
D) Foreign persons may be subject to tax on U.S.-source income without regard to their actual presence in the United States.

Question 9

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

Accepted Answer

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

Question 10

Kipp,a U.S.shareholder under the CFC provisions,owns 40% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000,Kipp is not taxed on receipt of a constructive dividend of $80,000 because he doesn't own more than 50% of the CFC.

Accepted Answer

A) True 
 B)False

Question 11

RedCo,a domestic corporation,incorporates its foreign branch in a § 351 exchange,creating GreenCo,a wholly owned foreign corporation.RedCo 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?

Accepted Answer

A) $0. 
B) $50. 
C) $25. 
D) ($25).

Question 12

Collins,Inc.received gross foreign-source dividend income of $250,000.Foreign taxes withheld on the dividend were $25,000 and no § 902 credit is available.Its worldwide taxable income for the tax year is $500,000.U.S.tax before the FTC is $175,000.Collins' current year FTC is $87,500.

Accepted Answer

A) True 
 B)False

Question 13

Scott,Inc. ,a domestic corporation,receives a dividend of $700,000 from a non-CFC foreign corporation.Deemed-paid foreign taxes attributable to the dividend are $120,000.If Scott elects the FTC,its gross income attributable to this dividend is $700,000.

Accepted Answer

A) True 
 B)False

Question 14

Subpart F income includes portfolio income like dividends and interest.

Accepted Answer

A) True 
 B)False

Question 15

A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

Accepted Answer

A) Repatriating more foreign income to the United States in the year there is an excess limitation. 
B) Deducting the excess foreign taxes that do not qualify for the credit. 
C) Generating "same basket" foreign-source income that is subject to a tax rate lower than the U.S.tax rate. 
D) Generating "same basket" foreign-source income that is subject to a tax rate higher than the U.S.tax rate.

Question 16

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

Accepted Answer

A) True 
 B)False

Question 17

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 18

BlueCo,a domestic corporation,incorporates its foreign branch in a § 351 exchange,creating GreenCo,a wholly owned foreign corporation.BlueCo transfers $200 in inventory (basis = $50)and $900 in land (basis = $950)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?

Accepted Answer

A) $0. 
B) ($50). 
C) $100. 
D) $150.

Question 19

Waltz,Inc. ,a U.S.taxpayer,pays foreign taxes of $50,000 on foreign-source general basket income of $90,000.Waltz's worldwide taxable income is $450,000,on which it owes U.S.taxes of $157,500 before FTC.Waltz's FTC is $50,000.

Accepted Answer

A) True 
 B)False

Question 20

A domestic corporation is one whose assets are primarily (> 50%)located in the U.S.

Accepted Answer

A) True 
 B)False

Exam 9: Taxation of International Transactions

OutCo,a controlled foreign corporation in Meena,earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies.All of the dividend payors are located in Meena.OutCo's Subpart F income for the year is:

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. Is Yvonne treated as a U.S.resident for the current year?

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

ForCo,a foreign corporation,purchases widgets from USCo,Inc. ,its U.S.parent corporation.The widgets are sold by ForCo to another unrelated foreign corporation in the same country as ForCo.The income from sale of the widgets by ForCo is not Subpart F foreign base company sales income.

The source of income received for the use of intangible property is the home country of the owner of the property producing the income.

Which of the following statements regarding income sourcing is not correct?

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

Kipp,a U.S.shareholder under the CFC provisions,owns 40% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000,Kipp is not taxed on receipt of a constructive dividend of $80,000 because he doesn't own more than 50% of the CFC.

Collins,Inc.received gross foreign-source dividend income of $250,000.Foreign taxes withheld on the dividend were $25,000 and no § 902 credit is available.Its worldwide taxable income for the tax year is $500,000.U.S.tax before the FTC is $175,000.Collins' current year FTC is $87,500.

Scott,Inc. ,a domestic corporation,receives a dividend of $700,000 from a non-CFC foreign corporation.Deemed-paid foreign taxes attributable to the dividend are $120,000.If Scott elects the FTC,its gross income attributable to this dividend is $700,000.

Subpart F income includes portfolio income like dividends and interest.

A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

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?

Waltz,Inc. ,a U.S.taxpayer,pays foreign taxes of $50,000 on foreign-source general basket income of $90,000.Waltz's worldwide taxable income is $450,000,on which it owes U.S.taxes of $157,500 before FTC.Waltz's FTC is $50,000.

A domestic corporation is one whose assets are primarily (> 50%)located in the U.S.