Question 1

Which of the following statements is false in regard to the U.S.income tax treaty program?

Accepted Answer

U.S. income tax treaties are not limited to covering only up to five foreign countries. They may cover more or fewer countries depending on the specific treaty.

Question 2

Wood,a U.S.corporation,owns Holz,a German corporation.Wood receives a dividend (non-Subpart F income) from Holz of 75,000€.The average exchange rate for the year is $1US: 0.6€,and the exchange rate on the date of the dividend distribution is $1US: 0.80€.Wood's exchange gain or loss is:

Accepted Answer

The answer of Wood,a U.S.corporation,owns Holz,a German corporation.Wood receives a...

Question 3

Wood,a U.S.corporation,owns 30% of Hout,a foreign corporation.The remaining 70% of Hout is owned by other foreign corporations not controlled by Wood.Hout's functional currency is the euro.Wood receives a 50,000€ distribution from Hout.If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1,the exchange rate at year end is .95€: $1,and on the date of the dividend payment the exchange rate is 1.1€: $1,what is Wood's tax result from the distribution?

Accepted Answer

The answer of Wood,a U.S.corporation,owns 30% of Hout,a foreign corporation.The...

Question 4

The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

Accepted Answer

The U.S. system for taxing income earned inside its borders by non-U.S. persons is indeed referred to as inbound taxation because these foreign individuals are coming into the United States to earn income.

Question 5

Dividends received from a domestic corporation are totally U.S.source:

Accepted Answer

The answer of Dividends received from a domestic corporation are...

Question 6

Chang,an NRA,is employed by Fisher,Inc. ,a foreign corporation.In November,Chang spends 10 days in the United States performing consulting services for Fisher's U.S.branch.She earns $5,000 per month.A month includes 20 workdays.

Accepted Answer

Chang has U.S.-source income of $2,500 because her foreign employer, Fisher, Inc., has a U.S. branch. As per the U.S. tax laws, income earned in the U.S. by a foreign corporation's employee is considered U.S.-source income, regardless of the length of stay in the U.S. Also, the exemption limit for a foreign employee's U.S.-source income is not applicable in this scenario.

Question 7

U.S.income tax treaties typically:

Accepted Answer

Income tax treaties typically provide rules and mechanisms for multinational taxpayers to avoid double taxation, which occurs when the same income is taxed by two or more jurisdictions. This is usually done through provisions for tax credits and exemptions. The treaties do not provide for taxation exclusively by either the source country or the country of residence, nor do they prioritize the country with the highest tax rate.

Question 8

Which of the following statements best describes the purpose of § 482,under which the Treasury can reallocate income and deductions among related taxpayers?

Accepted Answer

§ 482 is intended to place a controlled entity on a tax parity with an uncontrolled entity with regard to prices charged by the entities. This prevents related entities from manipulating transfer prices to shift income to lower-tax jurisdictions, and allows the Treasury to reallocate income and deductions among related taxpayers to ensure that the prices charged are arm's length.

Question 9

Olaf,a citizen of Norway with no trade or business activities in the United States,sells at a gain 200 shares of MicroShift,Inc. ,a U.S.company.The sale takes place through Olaf's broker in Oslo.How is this gain treated for U.S.tax purposes?

Accepted Answer

Since Olaf has no trade or business activities in the United States, his gain from the sale of shares in a U.S. company is considered foreign-source income and is not subject to U.S. taxation.

Question 10

Without the foreign tax credit,double taxation would result when:

Accepted Answer

Double taxation occurs when the same income is taxed twice, once by the country where the income was earned and again by the country of residence or citizenship. In this scenario, a U.S. resident earning income from a foreign country would be subject to taxation by both the foreign country and the United States. The foreign tax credit helps to avoid double taxation by allowing taxpayers to offset their U.S. tax liability by the amount of foreign taxes paid on the same income. Without the foreign tax credit, the taxpayer would be subject to double taxation on their foreign-source income.

Question 11

During the current year,USACo (a domestic corporation) sold equipment to FrenchCo,a foreign corporation,for $350,000,with title passing to the buyer in France.USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment,all of which were allocated to U.S.-source income.USACo's adjusted basis in the equipment is $20,000 on the date of sale.What is the source of the $330,000 gain on the sale of this equipment?

Accepted Answer

The $250,000 gain represents the difference between the adjusted basis of $20,000 and the sale price of $270,000 (the portion of the sale price allocated to U.S.-source income). This gain is U.S.-source. The remaining $80,000 gain represents the depreciation deductions that were taken on the equipment, which were allocated to U.S.-source income. Since no foreign-source income was included in the depreciation deductions, this $80,000 gain is also U.S.-source. Therefore, the total gain is $330,000, with $250,000 being foreign-source and $80,000 being U.S.-source.

Question 12

Section 482 is used by the Treasury to:

Accepted Answer

The answer of Section 482 is used by the Treasury...

Question 13

Flapp Corporation,a U.S.corporation,conducts all of its transactions in the U.S.dollar.It sells inventory for $1 million to a Canadian company when the exchange rate is $1US: $1.2Can.The Canadian company pays for the inventory when the exchange rate is $1US: $1.25Can.What is Flapp's exchange gain or loss on this sale?

Accepted Answer

The answer of Flapp Corporation,a U.S.corporation,conducts all of its transactions...

Question 14

GreenCo,a U.S.corporation,earns $25 million of taxable income from U.S.sources and $10 million of taxable income from foreign sources.What amount of taxable income does GreenCo report on its U.S.tax return?

Accepted Answer

GreenCo reports all of its taxable income earned from U.S. sources and foreign sources on its U.S. tax return. Therefore, the taxable income reported on the U.S. tax return is $25 million (from U.S. sources) + $10 million (from foreign sources) = $35 million.

Question 15

An advance pricing agreement (APA) is used between:

Accepted Answer

An advance pricing agreement (APA) is an agreement made between the taxpayer and the Internal Revenue Service (IRS) for the determination of transfer pricing for a certain period of time. Therefore, the correct choice is C, the taxpayer and the IRS.

Question 16

ForCo,a foreign corporation,receives interest income of $100,000 from USCo,an unrelated domestic corporation.USCo has historically earned 85% of its income from foreign sources.What amount of ForCo's interest income is U.S.source?

Accepted Answer

The answer of ForCo,a foreign corporation,receives interest income of $100,000...

Question 17

Liang,an NRA,is sent to the United States by Fuller Corporation,her foreign employer.She spends 50 days in the United States and earns $20,000 for a two-month period.This amount is attributable to 40 U.S.working days and 10 non-U.S.working days.Her employer does not have a U.S.trade or business and Liang spends no other time in the U.S.for the tax year.Liang's U.S.-source taxable income is:

Accepted Answer

Liang's U.S.-source taxable income is calculated based on the number of U.S. working days she spent in the country. As she spent 40 U.S. working days out of a total of 50 days, her U.S.-source taxable income is 40/50 of her total income, which is $16,000. Liang's foreign employer does not have a U.S. trade or business and she spent no other time in the U.S. during the tax year, so she is not subject to any U.S. tax beyond the tax on her U.S.-source income. Therefore, the correct answer is B.

Question 18

Qwan,a U.S.corporation,reports $250,000 interest expense for the tax year.None of the interest relates to nonrecourse debt or loans from affiliated corporations.Qwan's U.S.and foreign assets are reported as follows. Fair market value- U.S.assets $ 5,000,000 Foreign assets $10,000,000 Tax book value- U.S.assets $ 2,000,000 Foreign assets $ 6,000,000 ​ How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Accepted Answer

Using fair market values maximizes the foreign tax credit (FTC) by allocating more interest expense to foreign sources, as the foreign assets have a higher fair market value compared to their tax book value.

Question 19

USCo,a U.S.corporation,purchases inventory from distributors within the U.S.and resells this inventory to customers outside the U.S. ,with title passing outside the U.S.Profit on the sale is $10,000.What is the source of the USCo's inventory sales income?

Accepted Answer

The source of USCo's inventory sales income is foreign because the title passes outside the U.S. Therefore, the entire profit of $10,000 is foreign-sourced.

Question 20

The U.S.system for taxing income earned outside its borders by U.S.persons is referred to as the territorial approach,because only income earned within the U.S.border is subject to taxation.

Accepted Answer

The U.S. system for taxing income earned outside its borders by U.S. persons is referred to as the worldwide approach, not the territorial approach. Under the worldwide approach, a U.S. person is subject to tax on their worldwide income, regardless of where it is earned. However, there are certain foreign tax credits and exclusions that may apply to alleviate double taxation.

Quiz 25: Taxation of International Transactions