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Exam 24: The Ustaxation of Multinational Transactions

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Question 41

True/False

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The United States generally taxes U.S.source fixed and determinable,annual or periodic income (FDAP)earned by non-U.S.persons by applying a withholding tax to the gross amount of income.

A) True
B) False

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Question 42

Multiple Choice

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To be eligible for the "closer connection" exception to the physical presence test,an individual must be in the United States for less than how many days?

A) 31
B) 61
C) 181
D) 183

E) B) and D)
F) None of the above

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Question 43

Multiple Choice

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Hanover Corporation,a U.S.corporation,incurred $300,000 of interest expense during the current year.Hanover manufactures inventory that is sold within the United States and abroad.The total tax book value of its production assets is $20,000,000.The total tax book value of its foreign production assets is $5,000,000.What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes,assuming the interest expense is fully deductible?

The foreign tax credit regime is the primary mechanism used by the U.S.government to mitigate or eliminate the potential double taxation of income earned by U.S.individuals outside the United States.

Manchester Corporation,a U.S.corporation,incurred $100,000 of interest expense during the current year.Manchester manufactures inventory that is sold within the United States and abroad.The total tax book value of its U.S.production assets is $20,000,000.The total tax book value of its foreign production assets is $5,000,000.What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes,assuming the interest expense is fully deductible in the current year?

Alhambra Corporation,a U.S.corporation,receives a dividend from its 100 percent owned Spanish subsidiary.The dividend is eligible for the 100 percent dividends received deduction.Any income taxes paid to a Spanish taxing authority will be creditable on the U.S.tax return.

Which of the following persons should not be treated as a "U.S.shareholder" of a controlled foreign corporation (CFC) for subpart F purposes?

Ypsi Corporation has a precredit U.S.tax of $420,000 on $2,000,000 of taxable income in the current year.Ypsi has $400,000 of foreign source taxable income characterized as foreign branch income and $150,000 of foreign source taxable income characterized as passive category income.Ypsi paid $100,000 of foreign income taxes on the foreign branch income and $30,000 of foreign income taxes on the passive category income.What amount of foreign tax credit (FTC)can Ypsi use on its U.S.tax return and what is the amount of the FTC carryforward,if any?

Austin Corporation,a U.S.corporation,received the following investment income during the current year: $50,000 of dividend income from ownership of stock in a French corporation,$20,000 interest on a loan to its Dutch subsidiary,$40,000 royalty from its 50 percent owned Irish venture,and $30,000 capital gain from sale of its stock in a Brazilian corporation.How much of Austin's income is treated as foreign source?

Which of the following exceptions could cause subpart F income to be excluded from the deemed dividend regime?

A hybrid entity established in Ireland is treated as a flow-through entity for U.S.tax purposes and a corporation for Irish tax purposes.

Subpart F income earned by a CFC will always be treated as a deemed dividend to the CFC's U.S.shareholders in the year the subpart F income is earned.

Nicole is a citizen and resident of Australia.She has a full-time job in Australia and has lived there with her family for the past 10 years.In 2017,Nicole came to the United States on business and stayed for 180 days.She came to the United States again on business in 2018 and stayed for 150 days.In 2019 she came back to the United States on business and stayed for 100 days.Does Nicole meet the U.S.statutory definition of a resident alien in 2019 under the substantial presence test?

Amy is a U.S.citizen.During the year she earned income from an investment in a French company.Amy will be subject to U.S.taxation on her income under the principle of source-based taxation.

Obispo,Inc.,a U.S.corporation,received the following sources of income: $20,000 interest income from a loan to its 100 percent owned U.S.subsidiary. $30,000 dividend income from its 5 percent owned Canadian subsidiary. $50,000 royalty income from its Irish subsidiary for use of a trademark within the United States. $40,000 rent income from its Dutch subsidiary for use of a warehouse located in Belgium. $3,000 capital gain from sale of stock in its 40 percent owned Mexican joint venture.Title passed in the United States. What amount of foreign source income does Obispo have?

Which of the following statements best describes the operation of subpart F as it applies to income earned by a foreign corporation?

Absent a treaty provision,what is the statutory withholding tax rate imposed by the United States on a dividend paid by a U.S.corporation to a resident of Denmark?

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation,a U.S.corporation.During the current year,Horton paid a dividend of C$600,000 to Cruller.The dividend qualifies for the 100 percent dividends received deduction.The dividend was subject to a withholding tax of C$30,000.Assume an exchange rate of C$1 = $1.Cruller reported U.S.source taxable income of $2,000,000 before considering the dividend received from Horton Corporation.Compute the tax consequences to Cruller as a result of this dividend.

Saginaw Steel Corporation has a precredit U.S.tax of $105,000 on $500,000 of taxable income.Saginaw has $200,000 of foreign source taxable income and paid $60,000 of income taxes to the German government on this income.All of the foreign source income is treated as foreign branch income for foreign tax credit purposes.Saginaw's foreign tax credit on its tax return will be:

Cheyenne Corporation is a U.S.corporation engaged in the manufacture and sale of mining equipment.The company handles its export sales through sales branches in Canada and Mexico.The average tax book value of Cheyenne's assets for the year was $200 million,of which $100 million generated U.S.source income and $100 million generated foreign source income.Cheyenne's total interest expense for the year was $30 million.What amount of interest expense can Cheyenne apportion against its foreign source gross income for foreign tax credit purposes,assuming there is no limitation on the interest expense deduction?