Question 1

Once a U.S.corporation chooses a method to allocate interest expense,either fair market value or tax book value,that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.

Accepted Answer

Once a U.S. corporation chooses a method to allocate interest expense, it can change its method without obtaining the permission of the commissioner of the Internal Revenue Service. However, it must obtain approval from the IRS if the change is considered a change in accounting method.

Question 2

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

Accepted Answer

The statement is true. The foreign tax credit allows U.S. taxpayers to offset their U.S. tax liability by the amount of income taxes paid to foreign countries on income earned abroad. This helps to prevent double taxation on the same income.

Question 3

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

Accepted Answer

Deductible interest expense incurred by a U.S. corporation may be treated as foreign source deduction if it is related to income from foreign sources.

Question 4

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.

Accepted Answer

This is known as a "check-the-box" election, where the entity can choose to be classified as a flow-through entity for U.S. tax purposes even though it is a corporation for Irish tax purposes.

Question 5

A non U.S.citizen with a green card will always be treated as a resident alien for U.S.tax purposes regardless of the number of days she spends in the United States during the current year.

Accepted Answer

Green card holders are considered resident aliens for tax purposes regardless of the number of days they spend in the United States during the current year.

Question 6

The United States generally taxes U.S.sourced 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.

Accepted Answer

Non-U.S. persons earning U.S.-sourced FDAP income are generally subject to a withholding tax, which is a form of taxation applied to the gross amount of income earned.

Question 7

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

Accepted Answer

Outbound taxation refers to the tax rules and regulations that apply to U.S. citizens, residents, and businesses operating outside of the United States. It is concerned with how income earned abroad is taxed by the U.S. government.

Question 8

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.

Accepted Answer

Amy will be subject to U.S. taxation on her worldwide income, including income from foreign sources, under the principle of worldwide taxation, not source-based taxation.

Question 9

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.

Accepted Answer

Interest income from bonds issued by a foreign corporation (in this case, a Dutch corporation) is generally considered foreign source income for U.S. tax purposes, not U.S. source income.

Question 10

All taxes paid to a foreign government by a U.S.corporation are creditable on the corporation's U.S.tax return.

Accepted Answer

Not all foreign taxes are creditable; only those that meet specific criteria under U.S. tax law, such as being an income tax or a tax in lieu of an income tax, are eligible for the foreign tax credit.

Question 11

Under most U.S.treaties,a resident of the other country must have a permanent establishment in the United States before being subject to U.S.taxation on business profits earned within the United States.

Accepted Answer

According to most U.S. tax treaties, a resident of the other country must have a permanent establishment in the United States before being subject to U.S. taxation on business profits earned within the United States.

Question 12

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

Accepted Answer

This is the definition of nexus, which is a concept used in international taxation law.

Question 13

Philippe is a French citizen.During 2017 he spent 150 days in the United States on business.Because Philippe does not spend 183 days in the United States in 2017,he will not under any circumstances be treated as a resident alien for U.S.tax purposes.

Accepted Answer

Philippe could still be considered a resident alien under the substantial presence test, which considers the total number of days spent in the U.S. over a three-year period, not just a single year.

Question 14

Alex,a U.S.citizen,became a resident of Belgium in 2017.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.

Accepted Answer

U.S. citizens are subject to U.S. taxation on their worldwide income, regardless of where they reside. The U.S.-Belgium tax treaty may provide relief from double taxation, but it does not exempt U.S. citizens from U.S. tax obligations.

Question 15

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.

Accepted Answer

This is true. The withholding tax paid to the Canadian government can be claimed as a credit against the individual's U.S. tax liability, using Form 1116 (Foreign Tax Credit). This prevents double taxation on foreign-sourced income for U.S. taxpayers.

Question 16

The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S.source income.

Accepted Answer

Gross profit from a sale of inventory manufactured in the United States and sold in Spain may be subject to allocation and apportionment rules based on the location of the sale, the production activities, and other factors. Therefore, it may not always be treated as 100 percent U.S. source income.

Question 17

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.

Accepted Answer

This statement is true. The deferral of U.S. taxation on active business income earned by a corporation in Germany until such income is remitted back to the United States is a benefit of the U.S. tax system known as deferral of foreign income.

Question 18

Alhambra Corporation,a U.S.corporation,receives a dividend from its 100 percent owned Spanish subsidiary.For foreign tax credit purposes,the dividend will always be characterized as passive category income.

Accepted Answer

For foreign tax credit purposes, dividends from a 100% owned foreign subsidiary are typically categorized as general category income, not passive, unless specific conditions apply.

Question 19

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.

Accepted Answer

Because Cecilia spent more than 90 days in the United States, her income will be treated as U.S. source and subject to U.S. taxation. Additionally, there is no income tax treaty between the United States and Brazil that would affect her taxation.

Question 20

U.S.individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations.

Accepted Answer

The deemed-paid credit is available only to U.S. corporations, not individuals, for dividends received from foreign corporations.

Quiz 13: The Ustaxation of Multinational Transactions