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Exam 24: The Us Taxation of Multinational Transactions

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Question 31

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Gwendolyn was physically present in the United States for 90 days in 2018, 180 days in 2017, and 30 days in 2016. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2018?

A) 300
B) 155
C) 150
D) 90

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

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Question 32

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Portland Corporation is a U.S. corporation engaged in the manufacture and sale of fishing equipment. The company handles its export sales through sales branches in Canada and Norway. The average tax book value of Portland's assets for the year was $300 million, of which $250 million generated U.S. source income and $50 million generated foreign source income. Portland's total interest expense for the year was $24 million. What amount of interest expense can Portland apportion against its foreign source gross income for foreign tax credit purposes, assuming there is no limitation on the interest expense deduction?

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$4 million
Under the tax book ...

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Question 33

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Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?

Provo Corporation, a U.S. corporation, received a dividend of $350,000 from its 100 percent owned German subsidiary. A withholding tax of $35,000 was imposed on the dividend. What are the U.S. tax consequences to Provo on receipt of the dividend, assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S. operations?

Obispo, Inc., a U.S. corporation, received the following sources of income during 2018: $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 in 2018?

Deductible interest expense incurred by a U.S. corporation will always be treated as a U.S. source deduction.

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?

Natsumi is a citizen and resident of Japan. She has a full-time job in Japan and has lived there with her family for the past 20 years. In 2016, Natsumi came to the United States on business and stayed for 240 days. She came to the United States again on business in 2017 and stayed for 120 days. In 2018 she came back to the United States on business and stayed for 120 days. Does Natsumi meet the U.S. statutory definition of a resident alien in 2018 under the substantial presence test?

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.

Guido was physically present in the United States for 150 days in 2018, 120 days in 2017, and 90 days in 2016. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2018?

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?

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S. individual. The withholding tax will be creditable on the individual's U.S. tax return as an "in lieu of" tax.

"Outbound taxation" deals with the U.S. tax rules that apply to U.S. persons doing business outside the United States.

Which of the following items of foreign source income is classified as passive category income for foreign tax credit purposes?

Ames Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in 2018. Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the U.K. government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Ames's foreign tax credit on its 2018 tax return will be:

U.S. corporations are eligible for a foreign tax credit for withholding taxes imposed on dividends received from 100%-owned foreign corporations.

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

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.

Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from the sale of the inventory was $300,000. Title to the inventory passed FOB: destination. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

Santa Fe Corporation manufactured inventory in the United States and sold the inventory to customers in Mexico. Gross profit from the sale of the inventory was $200,000. Title to the inventory passed FOB: shipping point. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?