Question 1

GreenCo,a domestic corporation,earns $25 million of taxable income from U.S.sources and $5 million of taxable income from foreign sources.What amount of taxable income does GreenCo report on its U.S.tax return?

Accepted Answer

A)  $25 million.
B)  $30 million.
C)  $25 million less any tax paid on U.S.income.
D)  $30 million less any tax paid on the foreign income. B

Question 2

Which of the following determinations requires knowing the amount of one's foreign-source gross income?

Accepted Answer

A)  Itemized deductions.
B)  Foreign tax credit.
C)  Calculation of a U.S.person's total taxable income.
D)  Calculation of a U.S.person's deductible interest expense. B

Question 3

The United States has income tax treaties with only members of the European Union.

Accepted Answer

A) True 
 B)False  False

Question 4

ForCo,a foreign 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 foreign base company sales income.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following income items does not represent Subpart F income if earned by a CFC?

Accepted Answer

A)  Purchase of inventory from a U.S.parent and sale to anyone inside the CFC country.
B)  Purchase of inventory from a U.S.parent and sale to anyone outside the CFC country.
C)  Purchase of inventory from a U.S.parent and sale to a related party outside the CFC country.
D)  Purchase of inventory from a U.S.parent and sale to a non-related party outside the CFC country.

Question 6

SunCo,a domestic corporation,owns a number of patents related to designing sunglasses.SunCo licenses these patents to unrelated parties.SpainCo,a Spanish corporation,paid SunCo $78,000 in royalties related to these licenses.SpainCo uses the patent information in its manufacturing process in its Texas plant.WiscCo,a domestic corporation,paid SunCo $32,000 in royalties related to the licenses.WiscCo uses the patent information in its manufacturing process in its German manufacturing plant.How much foreign-source royalty income did SunCo earn from these licenses?

Accepted Answer

A)  $0.
B)  $32,000.
C)  $78,000.
D)  $110,000.

Question 7

Mark,Inc. ,a U.S.corporation,operates an unincorporated branch manufacturing operation in Germany.Mark,Inc. ,reports $100,000 of taxable income from the German branch on its U.S.tax return along with $400,000 of taxable income from its U.S.operations.Mark paid $40,000 in German income taxes related to the $100,000 in branch income.Assuming a U.S.tax rate of 35%,what is Mark's U.S.tax liability after any allowable foreign tax credits?

Accepted Answer

A)  $0.
B)  $175,000.
C)  $135,000.
D)  $140,000.
E)  Some other amount.

Question 8

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 9

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.The U.S.corporation's U.S.tax liability before FTC is $350,000,the gross dividend income is $240,000,and worldwide taxable income is $1 million.The U.S.corporation's foreign tax credit for the taxable year is:

Accepted Answer

A)  $70,000.
B)  $40,000.
C)  $30,000.
D)  $84,000.
E)  Some other amount.

Question 10

The following persons own Good Corporation,a foreign corporation.  None of the shareholders are related.Subpart F income for the tax year is $200,000.No distributions are made.Which of the following statements is correct?

Accepted Answer

A)  Good Corporation is not a CFC.
B)  Chee includes $60,000 in gross income.
C)  Marina includes $16,000 in gross income.
D)  Marina is not a U.S.shareholder.
E)  None of the above statements is correct.

Question 11

A U.S.corporation owns 30% of a foreign corporation.The remaining 70% is owned by other foreign corporations not controlled by the U.S.corporation.The functional currency of the foreign corporation is the euro.The U.S.corporation receives a dividend equivalent to 50,000€.If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1,the exchange rate at year end is .95€: $1 and on the date of the dividend payment is 1.1€: $1,what is the result to the U.S.corporation on receipt of the dividend?

Accepted Answer

A)  The U.S.corporation receives a dividend of $45,455 and realizes an exchange gain of $3,788 [$45,455 minus $41,667 (50,000€/1.2) ].
B)  The U.S.corporation receives a dividend of $45,455 (50,000€/1.1) with no exchange gain or loss.
C)  The U.S.corporation receives a dividend of $41,667 and realizes an exchange loss of $3,788 ($41,667 minus $45,455) .
D)  The U.S.corporation receives a dividend of $52,632 (50,000€/.95) with no exchange gain or loss.

Question 12

Disposition of stock of a domestic corporation that is a real property holding corporation is subject to tax under FIRPTA.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements regarding the U.S.taxation of foreign persons is true?

Accepted Answer

A)  A foreign person's effectively connected income is subject to U.S.income taxation.
B)  A foreign person's effectively connected income is tax free unless it is also characterized as FDAP income.
C)  A foreign person may earn income from U.S.real property without incurring any U.S.income tax.
D)  A foreign person must spend at least 183 days in the United States before any effectively connected income is subject to U.S.taxation.

Question 14

Hickman,Inc. ,a U.S.corporation,operates an unincorporated branch manufacturing operation in the United Kingdom.Hickman,Inc. ,reports $900,000 of taxable income from the U.K.branch on its U.S.tax return along with $1,300,000 of taxable income from its U.S.operations.Hickman paid $270,000 in U.K.income taxes related to the $900,000 in branch income.Assuming a U.S.tax rate of 35%,what is Hickman's U.S.tax liability after any allowable foreign tax credits?

Accepted Answer

A)  $0.
B)  $455,000.
C)  $500,000.
D)  $770,000.
E)  Some other amount.

Question 15

USCo has foreign-source income from a manufacturing operation,from sales of the manufactured goods,and from stocks and bonds held for investment.How many categories or "baskets" of income does USCo have for foreign tax credit limitation purposes?

Accepted Answer

A)  One.
B)  Two.
C)  Three.
D)  Four.

Question 16

Shannon,a foreign person with a green card,spends the following days in the United States.  Shannon's residency status for 2010 is:

Accepted Answer

A)  U.S.resident since she was a U.S.resident for the past immediately preceding two years.
B)  U.S.resident because she has a green card.
C)  Not a U.S.resident because Shannon was not in the United states for at least 31 days during 2010.
D)  Not a U.S.resident since,using the three-year test,Shannon is not present in the United states for at least 183 days.

Question 17

Which of the following transactions by a U.S.corporation may result in taxation under § 367.

Accepted Answer

A)  Incorporation of U.S branch as a U.S.corporation when the branch earns foreign-source income.
B)  Incorporation of a U.S.branch as a U.S.corporation if the new U.S.corporation has no foreign shareholders.
C)  Incorporation of a U.S.branch as a U.S.corporation if the new U.S.corporation also has foreign shareholders.
D)  All the above.
E)  None of the above.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Sang,an NRA who was not a resident of a treaty country,receives taxable dividends of $80,000 from a domestic corporations.Sang does not have a U.S.trade or business.The dividends are taxed by the United States through withholding by the payor of:

Accepted Answer

A)  0%.
B)  30%.
C)  34%.
D)  35%.
E)  39.6%.

Question 20

A nonresident alien realizes a gain on the sale of commercial real estate located in Cleveland,Ohio.The real estate was sold to his cousin who is also a nonresident alien.The seller has foreign-source income from the sale because the seller is a foreign resident.

Accepted Answer

A) True 
 B)False

Exam 25: Taxation of International Transactions

GreenCo,a domestic corporation,earns $25 million of taxable income from U.S.sources and $5 million of taxable income from foreign sources.What amount of taxable income does GreenCo report on its U.S.tax return?

Which of the following determinations requires knowing the amount of one's foreign-source gross income?

The United States has income tax treaties with only members of the European Union.

ForCo,a foreign 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 foreign base company sales income.

Which of the following income items does not represent Subpart F income if earned by a CFC?

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

The following persons own Good Corporation,a foreign corporation. None of the shareholders are related.Subpart F income for the tax year is $200,000.No distributions are made.Which of the following statements is correct?

Disposition of stock of a domestic corporation that is a real property holding corporation is subject to tax under FIRPTA.

Which of the following statements regarding the U.S.taxation of foreign persons is true?

USCo has foreign-source income from a manufacturing operation,from sales of the manufactured goods,and from stocks and bonds held for investment.How many categories or "baskets" of income does USCo have for foreign tax credit limitation purposes?

Shannon,a foreign person with a green card,spends the following days in the United States. Shannon's residency status for 2010 is:

Which of the following transactions by a U.S.corporation may result in taxation under § 367.

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

Sang,an NRA who was not a resident of a treaty country,receives taxable dividends of $80,000 from a domestic corporations.Sang does not have a U.S.trade or business.The dividends are taxed by the United States through withholding by the payor of:

A nonresident alien realizes a gain on the sale of commercial real estate located in Cleveland,Ohio.The real estate was sold to his cousin who is also a nonresident alien.The seller has foreign-source income from the sale because the seller is a foreign resident.