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Exam 13: Multijurisdictional Taxation

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Question 1

Multiple Choice

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Federal taxable income is used as the starting point in computing the state's income tax base,but numerous state adjustments or modifications generally are required to:

A) Reflect differences between state and Federal tax statutes.
B) Remove income that a state is constitutionally prohibited from taxing.
C) Allow for all of the states to use the same definition of taxable income.
D) a.and b.
E) All of the above.

F) All of the above
G) A) and C)

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D

Question 2

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A typical state taxable income addition modification is for the Federal income tax paid for the tax year.

A) True
B) False

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Question 3

Multiple Choice

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Which of the following statements regarding income sourcing is correct?

Which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia? Purchase of inventory from the U.S.parent,followed by:

Which of the following foreign taxes paid by a U.S.corporation may be eligible for the foreign tax credit?

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.

Columbia,Inc.,a U.S.corporation,receives a $150,000 cash dividend from Starke,Ltd.Columbia owns 15% of Starke.Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P.What is Columbia's foreign tax credit related to the Starke dividend?

Peanut,Inc.,a U.S.corporation,receives $500,000 of foreign-source interest income,on which foreign taxes of $5,000 are withheld.Peanut's worldwide taxable income is $900,000,and its U.S.Federal income tax liability before FTC is $270,000.What is Peanut's foreign tax credit?

A tax haven often is:

Adams Corporation owns and operates two manufacturing facilities,one in State X and the other in State Y.Due to a temporary decline in the corporation's sales,Adams has rented 20% of its Y facility to an unaffiliated corporation.Adams generated $1,000,000 net rental income and $5,000,000 income from manufacturing. Adams is incorporated in Y.For X and Y purposes,rental income is classified as allocable nonbusiness income.By applying the statutes of each state,Adams determined that its apportionment factors are .65 for X and .35 for Y. Adams's income attributed to X is:

The sourcing rules of Federal income taxation apply to deductions as well as to income items.

The following persons own Schlecht Corporation,a foreign corporation. Jim U.S. individual $~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~$ 35% Ging, U.S. individual $~~~~~~~~~~~~~~~~~~~~~~~~~~~~~$ 15% Marina. U.S. individual $~~~~~~~~~~~~~~~~~~~~~~~~~~$ 8% Pedro, U.S. individual $~~~~~~~~~~~~~~~~~~~~~~~~~~~~$ 12% Chee, non-U.S. individual $~~~~~~~~~~~~~~~~~~~~~~~$ 30% None of the shareholders are related.Subpart F income for the tax year is $300,000.No distributions are made.Which of the following statements is correct?

Carol,a citizen and resident of Adagio,reports gross income that is effectively connected with a U.S.business.No deductions are allowed against this income,and Carol's U.S.tax rate is a flat 30 percent.

The property factor includes business assets that the taxpayer owns,but also those merely used under a lease agreement.

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 $525,000.What is USCo's allowed foreign tax credit?

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 $40,000 in German income taxes related to the $100,000 of Dunkel income.Assuming a U.S.tax rate of 35%,what is Dark's U.S.tax liability after any allowable foreign tax credits?

The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

Present,Inc.,a U.S.corporation,owns 60% of the stock of Past,Inc.,a foreign corporation.For the current year,Present receives a dividend of $80,000 from Past.Past's pools of E & P (after taxes)and foreign taxes are $4,000,000 and $500,000,respectively.What is Present's total gross income from this dividend if it elects to claim the FTC for deemed-paid foreign taxes?

State Q wants to increase its income tax collections,but politically it would be unwise to raise taxes on in-state individuals or businesses.Q currently follows all UDITPA rules and employs an equally weighted three-factor apportionment formula.Q allocates nonbusiness income amounts.

Milt Corporation owns and operates two facilities that manufacture paper products.One of the facilities is located in State D,and the other is located in State E.E does not distinguish between business and nonbusiness property.D apportions business income.Milt's activities within the two states are outlined below. $\begin{array}{lll} & \textbf { State D } & \textbf { State E } & \textbf { Total }\\\text { Sales of paper products }& \$ 4,500,000 & \$ 1,500,000 &\$6,000,000\\\text { Property } & 3,500,000 & 2,500,000&6,000,000\\\text { Payroll } &1,500,000&1,000,000&2,500,000\end{array}$ Both D and E utilize a three-factor apportionment formula,under which sales,property,and payroll are equally weighted.Determine the amount of Milt's income that is subject to income tax by each state. E.Milt generated $1,200,000 of taxable income,comprised of $1,000,000 of income from its manufacturing facilities and a $200,000 gain from the sale of nonbusiness property located in