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Exam 24: The US Taxation of Multinational Transactions

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Question 41

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Camellia Corporation, a U.S. corporation, incurred $600,000 of research and experimental (R&E) expenses during 2014. Camellia sells inventory within the United States and abroad. Camellia conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $20,000,000, of which $12,000,000 was from foreign source sales. Gross profit from sale of the inventory was $8,000,000, 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?

A) $360,000
B) $180,000
C) $150,000
D) $112,500

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

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Question 42

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

A) A U.S. citizen owning 5 percent of the CFC
B) A U.S. citizen owning 15 percent of the CFC
C) A U.S. corporation owning 15 percent of the CFC
D) All of these persons are U.S. shareholders for subpart F purposes

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

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Question 43

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Russell Starling, an Australian citizen and resident, received the following investment income during 2014: $5,000 of dividend income from ownership of stock in a U.S. corporation, $10,000 interest from a certificate of deposit in a U.S. bank, $3,000 of interest income earned from a loan to Clint Westwood, a U.S. citizen, and $2,000 capital gain from sale of a stock in a U.S. corporation. How much of Russell's income will be subject to U.S. taxation in 2014?

Guido was physically present in the United States for 150 days in 2014, 120 days in 2013, and 90 days in 2012. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2014?

Alex, a U.S. citizen, became a resident of Belgium in 2013. Alex will no longer be subject to U.S. taxation on income he earns in Belgium if such income is exempted from tax under the U.S. - Belgium treaty.

Marcel, a U.S. citizen, receives interest income from bonds issued by a Dutch corporation. The interest income will be considered U.S. source income for U.S. tax purposes.

Madrid Corporation is a 100 percent owned Spanish subsidiary of Doubloon Corporation, a U.S. corporation. Madrid had post-1986 earnings and profits of €4,200,000 and post-1986 foreign taxes of $2,700,000. During the current year, Madrid paid a dividend of €2,100,000 to Doubloon. Assume an exchange rate of €1 = $1.50. Compute the tax consequences to Doubloon as a result of this dividend.

Hazelton Corporation, a U.S. corporation, manufactures golf equipment. Hazelton reported sales from this product group of $100 million, of which $40 million were foreign source sales. The gross profit percentage for domestic sales was 20%, and the gross profit percentage from foreign sales was 30%. Hazelton incurred R&E expenses of $10 million, all of which were conducted in the United States. What is the minimum amount of the R&E expense that can be apportioned to foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $24,000 of compensation within the United States. She worked 60 days in the United States and 180 days in Brazil. How much of her compensation earned in the United States will be subject to U.S. tax?

A deemed paid credit is available on which of the following dividends received by a U.S. corporation?

A rectangle with a triangle within it is a symbol used to represent what organizational form?

Under which of the following scenarios could Charles, a citizen of England, be eligible to claim the "closer connection" exception to the substantial presence test in 2014?

Which of the following tax rules applies to an excess foreign tax credit (FTC) that arises in 2014?

Flint Steel Corporation has a precredit U.S. tax of $170,000 on $500,000 of taxable income in 2014. Flint has $200,000 of foreign source taxable income and paid $80,000 of income taxes to the German government on this income. All of the foreign source income is treated as general category income for foreign tax credit purposes. Flint's foreign tax credit on its 2014 tax return will be:

Which statement best describes the U.S. framework for taxing multinational transactions?

Kiwi Corporation is a 100 percent owned Australian subsidiary of Exotic Fruit Corporation, a U.S. corporation. Kiwi had post-1986 earnings and profits of 1,000,000 Australian dollars (AUD) and post-1986 foreign taxes of $225,000. During the current year, Kiwi paid a dividend of 250,000 AUD to Exotic Fruit. Assume an exchange rate of 1 AUD = $0.75. No withholding tax was imposed on the dividend. What amount of taxable income does the dividend generate on Exotic's U.S. tax return?

Rafael is a citizen of Spain and a resident of the United States. During 2014, Rafael received the following income: Compensation of $5 million from competing in tennis matches in the U.S. Cash dividends of $10,000 from a Spanish corporation that earns 50 percent of its income from sales in the United States Interest of $2,000 from a Spanish citizen who is a resident of the U.S. Rent of $5,000 from U.S. residents who rented his villa in Italy Gain of $10,000 on the sale of stock in a German corporation. Determine the source (U.S. or foreign) of each item of income Rafael received in 2014. $\begin{array} { | c | l | } \hline { \text { Income } } & \text { Source } \\\hline & \\\hline \text { Compensation } & \text { U.S. source } \\\hline \text { Dividend } & \text { U.S. source } \\\hline \text { Interest } & \text { Forcign source } \\\hline \text { Rent } & \text { U.S. source } \\\hline \text { Gain on the sale of stock } & \text { U.S. source } \\\hline\end{array}$

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2014. Included in the computation of taxable income was foreign source taxable income of $200,000, of which $87,500 was a dividend received from the corporation's 100 percent owned subsidiary in Ireland. The dividend brought with it a deemed paid credit of $12,500. In addition, a withholding tax of $4,375 was imposed on the dividend. Compute Boca Corporation's net U.S. tax liability for 2014. Assume a U.S. tax rate of 34 percent.

Before subpart F applies, a foreign corporation must be a CFC for how many consecutive days?

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