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Exam 24: The US Taxation of Multinational Transactions

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Question 21

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What form is used by a U.S. corporation to "check-the-box" to elect the U.S. tax consequences of forming a hybrid entity outside the United States?

A) Form 1118.
B) Form 8832.
C) Form 1120.
D) Form 8833.

E) None of the above
F) All of the above

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Question 22

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Which of the following expenses incurred by a U.S. corporation is not subject to special apportionment rules for foreign tax credit purposes?

A) Advertising.
B) State and local income taxes.
C) Research and experimental.
D) Interest.

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

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Question 23

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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?

Knoxville Corporation, a U.S. corporation, incurred $300,000 of research andexperimental (R&E) expenses during 2017. Knoxville sells inventory within the United States and abroad. Knoxville conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $10,000,000, of which $3,000,000 was from foreign source sales. Gross profit from sale of the inventory was $5,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

Which of the following statements best describes the substantial presence test as it applies to determining if a non U.S. citizen is a resident alien for U.S. tax purposes?

Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States inthe 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 2017, 120 days in2016, and 90 days in 2015. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2017?

Bismarck Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxableincome in 2017. Bismarck has $200,000 of foreign source taxable income characterized as general category income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the general category income and $10,000 of foreign income taxes on the passive categoryincome. What amount of foreign tax credit (FTC) can Bismarck use on its 2017 U.S. tax return and what is the amount of the carryforward, if any?

Which of the following tax rules applies to an excess foreign tax credit (FTC) that arises in 2017?

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?

Sushi Corporation is a 100 percent owned Japanese subsidiary of Squid, Inc., a U.S. corporation.Sushi had post-1986 earnings and profits of ¥120,000,000 and post-1986 foreign taxes of $800,000. During the current year, Sushi paid a dividend of ¥60,000,000 to Squid. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a 0 percent withholding tax. Assume an exchange rate of ¥1 = $0.010. Squid reported U.S. taxable income of$2,000,000. Squid's U.S. tax rate is 34 percent. Compute Squid's net U.S. tax liability for the current year and excess FTC, if any.

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

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.

Which of the following foreign taxes is not a creditable foreign tax for U.S. tax purposes?

A U.S. corporation can use hybrid entities to avoid the application of subpart F to cross border payments made between wholly-owned entities outside the United States.

One of the tax advantages to using a corporation through which to earn income in Germany is deferral of U.S. taxation on active business income earned by the corporation until such income is remitted back to the United States.

Cheyenne Corporation is a U.S. corporation engaged in the manufacture and sale of miningequipment. 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. Theaverage fair market value of Cheyenne's assets was $600 million, of which $400 million generated U.S. source income and $200 million generated foreign source income. Cheyenne's total interest expense for the year was $30 million. What is the minimum amount of interest expense thatCheyenne can apportion against its foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

Which of the following income earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?

Boomerang Corporation, a New Zealand corporation, is owned by the followingunrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and45 percent by an Australian corporation. During the year, Boomerang earned $3,000,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Boomerang?

Spartan Corporation, a U.S. company, manufactures widgets for sale in the United States andEurope. All manufacturing activities take place in the United States. During the current year,Spartan sold 100,000 widgets to European customers at a price of $5 each. Each widget costs $2 to produce. All of Spartan's production assets are located in the United States. For each independent scenario, determine the source of the gross profit from sale of the widgets using the 50/50 method.A. Spartan ships its widgets F.O.B., place of destination. B. Spartan ships its widgets F.O.B., place of shipment.