Question 1

Jokerz, a CFC of a U.S. parent, generated $80,000 Subpart F foreign base company services income in its first year of operations. The next year, Jokerz distributes $50,000 cash to the parent, from those service profits. The parent is taxed on $0 in the first year (tax deferral rules apply) and $50,000 in the second year.

Accepted Answer

A) True 
 B)False

Question 2

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
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
-Portfolio income treated as Subpart F income.

Accepted Answer

The answer of Match the definition with the correct term....

Question 3

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 sourcing 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 4

Match the definition with the correct term.
a. Inbound
b. Outbound
c. Allocation and apportionment 
d. Qualified business unit
e. Tax haven
f. Income tax treaty 
g. Section 482
-Method for sourcing income and deductions.

Accepted Answer

The answer of Match the definition with the correct term.
a....

Question 5

A tax haven often is:

Accepted Answer

A)  A country with high internal income taxes. 
B)  A country with no or low internal income taxes. 
C)  A country without income tax treaties. 
D)  A country that prohibits "treaty shopping."

Question 6

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 7

An advance pricing agreement (APA) is used between:

Accepted Answer

A)  Two or more governments. 
B)  Two related taxpayers. 
C)  The taxpayer and the IRS. 
D)  The IRS and U.S. taxing authorities.

Question 8

Without the foreign tax credit, double taxation would result when:

Accepted Answer

A)  The United States taxes the U.S.-source income of a U.S. resident. 
B)  A foreign country taxes the foreign-source income of a nonresident alien. 
C)  The United States and a foreign country both tax the foreign-source income of a U.S. resident. 
D)  Terms of a tax treaty assign income taxing rights to the U.S.

Question 9

Dark, Inc., a U.S. corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany. Dark reports $100,000 of taxable income from Dunkel on its U.S. tax return, along with $400,000 of taxable income from its U.S. operations. Dark paid $30,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S. tax rate of 21%, what is Dark's U.S. tax liability after any allowable foreign tax credits?

Accepted Answer

A)  $21,000 
B)  $75,000 
C)  $84,000 
D)  $105,000

Question 10

Which of the following situations requires the filing of an information return with the U.S. government?

Accepted Answer

A)  A domestic corporation that is 25% or more foreign owned. 
B)  A foreign corporation carrying on a trade or business in the United States. 
C)  U.S. persons who acquire or dispose of an interest in a foreign partnership. 
D)  All of the above. 
E)  None of the above.

Question 11

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

Accepted Answer

A)  Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income. 
B)  Foreign persons with any U.S.-source income are taxed on net investment income (after expenses). 
C)  Foreign persons are not subject to U.S. tax if not engaged in a U.S. trade or business. 
D)  Foreign persons with only U.S.-source investment income are exempt from U.S. tax.

Question 12

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 13

A domestic corporation is one whose assets are primarily located in the U.S. For this purpose, the primarily located test (greater than 50%) applies.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

A deferral of Federal corporate income taxes by a multinational taxpayer is possible by using:

Accepted Answer

A)  A subsidiary corporation in another country. 
B)  A licensing arrangement for a customer using the seller's software. 
C)  Both a. and b. 
D)  Neither a. nor b.

Question 16

Match the definition with the correct term.
a. Expatriate 
b. Resident
c. Nonresident alien
d. U.S. trade or business 
e. Branch profits tax
f. Effectively connected income
-Individual who is not a U.S. citizen or resident.

Accepted Answer

The answer of Match the definition with the correct term.
a....

Question 17

Goolsbee, Inc., a U.S. corporation, generates U.S.-source and foreign-source gross income. Goolsbee's assets (tax basis) are as follows.
  
Goolsbee incurs interest expense of $200,000. Apportion interest expense to foreign-source income.

Accepted Answer

The answer of Goolsbee, Inc., a U.S. corporation, generates U.S.-source...

Question 18

Section 482 is used by the Treasury to:

Accepted Answer

A)  Force taxpayers to use arms-length transfer pricing on transactions between related parties. 
B)  Reallocate income, deductions, etc., to a related taxpayer to minimize tax liability. 
C)  Increase information that is reported about U.S. corporations with non-U.S. owners. 
D)  All of the above. 
E)  None of the above.

Question 19

In working with the foreign tax credit, a U.S. corporation may be able to alleviate the problem of excess foreign taxes by:

Accepted Answer

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

Question 20

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.-source?

Accepted Answer

A)  $0 
B)  $10,500 
C)  $39,500 
D)  $50,000

Exam 25: Taxation of International Transactions

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 sourcing of AirCo's inventory sales income?

Match the definition with the correct term. a. Inbound b. Outbound c. Allocation and apportionment d. Qualified business unit e. Tax haven f. Income tax treaty g. Section 482 -Method for sourcing income and deductions.

A tax haven often is:

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.

An advance pricing agreement (APA) is used between:

Without the foreign tax credit, double taxation would result when:

Which of the following situations requires the filing of an information return with the U.S. government?

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

A domestic corporation is one whose assets are primarily located in the U.S. For this purpose, the primarily located test (greater than 50%) applies.

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

A deferral of Federal corporate income taxes by a multinational taxpayer is possible by using:

Match the definition with the correct term. a. Expatriate b. Resident c. Nonresident alien d. U.S. trade or business e. Branch profits tax f. Effectively connected income -Individual who is not a U.S. citizen or resident.

Goolsbee, Inc., a U.S. corporation, generates U.S.-source and foreign-source gross income. Goolsbee's assets (tax basis) are as follows. Goolsbee incurs interest expense of $200,000. Apportion interest expense to foreign-source income.

Section 482 is used by the Treasury to:

In working with the foreign tax credit, a U.S. corporation may be able to alleviate the problem of excess foreign taxes by:

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.-source?