Question 1

Identify which of the following statements is true.

Accepted Answer

All of the statements are true. U.S. citizens, resident aliens, and domestic corporations are subject to taxation on their worldwide income at regular U.S. tax rates. Nonresident aliens and foreign corporations may not be subject to U.S. taxation on certain non-U.S.-source income. The foreign tax credit limitation does allow taxpayers to offset foreign taxes paid in one country against the limitation amounts originating in other countries.

Question 2

Nonresident aliens are not allowed to claim the standard deduction.

Accepted Answer

Nonresident aliens are not eligible for standard deduction. They may have to file their taxes as per a different set of rules and can claim only certain deductions and credits.

Question 3

Income derived from the sale of merchandise inventory (i.e.,final goods purchased for resale)are sourced in the country where the sale occurs.

Accepted Answer

Income from the sale of merchandise inventory is considered sourced in the country where the sale occurs. This is because the final goods were purchased for resale, and the sale represents the realization of the business's investment in those goods. Therefore, the income is directly connected to the economic activity taking place in the country where the sale occurs.

Question 4

A nonresident alien can elect to be considered a resident alien if the nonresident alien is married to a U.S.citizen or a resident alien on the last day of the tax year and both spouses consent.

Accepted Answer

This is known as the "Married Filing Jointly" option, where a nonresident alien can elect to be treated as a resident alien for tax purposes if they are married to a U.S. citizen or resident alien and both spouses consent. This option allows them to file a joint tax return and take advantage of certain tax benefits that are only available to resident aliens.

Question 5

A taxpayer who is physically present in a foreign country for 330 full days out of a 12-month period and maintains a tax home there has satisfied the bona fide foreign resident test.

Accepted Answer

According to the IRS, a taxpayer who meets the physical presence and tax home requirements for 330 full days out of a 12-month period is considered a bona fide foreign resident for tax purposes. Therefore, the statement is true.

Question 6

U.S.shareholders are not taxed on dividends paid by a foreign subsidiary as long as the earnings are not remitted to them as dividends.

Accepted Answer

The answer of U.S.shareholders are not taxed on dividends paid...

Question 7

U.S.citizens and resident aliens working abroad may qualify for the foreign-earned income exclusion of $97,600 in 2013.

Accepted Answer

The foreign-earned income exclusion for 2013 was $97,600 for qualifying U.S. citizens and resident aliens working abroad.

Question 8

Ashley,a U.S.citizen,works in England for part of the year.She earns $40,000 in England,paying $10,000 in income taxes to the British government.Her U.S.income is $60,000 and she pays $12,000 in U.S.taxes.Her U.S.taxes on her worldwide income are $20,000.What is Ashley's excess foreign tax credit? Assume she does not qualify for the foreign-earned income exclusion.

Accepted Answer

Ashley's foreign tax credit is limited to her U.S. tax liability on her foreign income, which is $12,000. She already paid $10,000 in taxes to the British government, so her excess foreign tax credit is $2,000, which is the difference between her foreign tax liability and her U.S. tax liability on foreign income. Therefore, the best choice is B.

Question 9

A U.S.corporation can claim a credit for foreign taxes withheld from dividends paid by a foreign corporation in which it owns at least 10% of the stock.

Accepted Answer

This is known as the foreign tax credit and is allowed under the U.S. tax code.

Question 10

Excess foreign tax credits can be carried back one year and forward five years.

Accepted Answer

The answer of Excess foreign tax credits can be carried...

Question 11

Alan,a U.S.citizen,works in Germany and earns $70,000,paying $20,000 in German taxes.His U.S.income is $40,000 and he pays $8,000 in U.S.taxes.His U.S.taxes on his worldwide income are $22,500.What is Alan's foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion.

Accepted Answer

To calculate the foreign tax credit, we need to find the portion of Alan's U.S. taxes that are attributable to his German income. First, we calculate Alan's total tax liability if he only had U.S. income:

$40,000 U.S. income + $70,000 German income - $20,000 German taxes = $90,000 total income

Tax liability on $90,000 for a single filer is $22,250. So, Alan's U.S. taxes without the foreign tax credit would be $22,250.

Next, we calculate the portion of Alan's U.S. taxes that are attributable to his German income:

$22,250 x ($70,000 / $90,000) = $17,317.

Finally, we subtract the foreign tax credit from the portion of the U.S. taxes attributable to German income:

$17,317 - $8,000 (U.S. taxes paid) = $9,317 foreign tax credit.

Therefore, the answer is B) $14,318.

Question 12

U.S.citizens,resident aliens,and domestic corporations are taxed by the U.S.government on their worldwide income at regular U.S.tax rates.

Accepted Answer

U.S. citizens, resident aliens, and domestic corporations are subject to taxation on their worldwide income by the U.S. government at regular U.S. tax rates.

Question 13

Alan,a U.S.citizen,works in Germany and earns $70,000,paying $20,000 in German taxes.His U.S.income is $40,000 and he pays $8,000 in U.S.taxes.His U.S.taxes on his worldwide income are $22,500.What is Alan's excess foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion.

Accepted Answer

To calculate Alan's excess foreign tax credit, we need to compare the amount of foreign taxes he paid to the amount of foreign taxes he can claim as credit on his U.S. tax return. The maximum foreign tax credit that Alan can claim is the amount of his U.S. tax liability on his foreign income, which is $22,500. 
However, he already claimed $8,000 as a foreign tax credit for the German taxes he paid. Therefore, his excess foreign tax credit is $22,500 - $8,000 = $14,500. 
But we should also consider that the excess foreign tax credit cannot exceed the foreign taxes paid, so the correct answer is B) $5,682, which is the difference between $20,000 (German taxes paid) and $14,500 (excess foreign tax credit).

Question 14

Julia,an accrual-method taxpayer,is a U.S.citizen and a resident of a foreign country.Her tax year for both countries is a calendar year.Julia accrues 50,000 coras for the foreign country tax liability on December 31 of last year when the exchange rate is one cora = $1.Julia pays the tax to the foreign country on its due date,March 1 of the current year.The exchange rate on that date is one cora = $1.50.( Julia files her U.S.tax return for last year on April 15 of the current year when the exchange rate is one cora = $2.Julia's foreign tax credit is

Accepted Answer

Julia can claim a foreign tax credit on her U.S. tax return for the foreign taxes paid on her foreign source income. The amount of the credit is calculated by converting the foreign taxes paid into U.S. dollars using the exchange rate on the date the taxes were paid (March 1) and comparing that amount to the U.S. tax liability on the same foreign source income.

In this case, Julia accrued $50,000 in foreign taxes on December 31 when the exchange rate was 1 cora = $1. She paid the tax on March 1 when the exchange rate was 1 cora = $1.50, so the amount of foreign taxes paid in U.S. dollars is:

$50,000 x (1 cora/$1.50) = $33,333.33

Julia can claim a credit for this amount on her U.S. tax return for the calendar year. However, she must also calculate the limit on the credit based on her U.S. tax liability on the same foreign source income. Since we don't have information on Julia's U.S. tax liability or foreign source income, we cannot say for certain how much of the credit she will be able to claim.

However, we do know that the credit cannot exceed the total amount of foreign taxes paid. Therefore, the maximum credit Julia could claim is $33,333.33 (Option B).

Question 15

If foreign taxes on foreign income exceed U.S.taxes on foreign income,the excess foreign taxes are credited against U.S.taxes in the current year.

Accepted Answer

The answer of If foreign taxes on foreign income exceed...

Question 16

Which of the following characteristics is not used by the U.S.government to determine the tax treatment accorded foreign-related transactions?

Accepted Answer

The answer of Which of the following characteristics is not...

Question 17

Under the Subpart F rules,controlled foreign corporations (CFCs)are required to distribute a certain portion of their income as dividends to their U.S.shareholders.

Accepted Answer

Subpart F rules require U.S. shareholders of CFCs to include in their gross income their share of the CFC's Subpart F income, whether or not the income is actually distributed as dividends.

Question 18

For the foreign credit limitation calculation,income derived from the sale of inventory which is produced by the seller,is considered earned

Accepted Answer

The answer of For the foreign credit limitation calculation,income derived...

Question 19

Ashley,a U.S.citizen,works in England for part of the year.She earns $40,000 in England,paying $10,000 in income taxes to the British government.Her U.S.income is $60,000 and she pays $12,000 in U.S.taxes.Her taxes on her worldwide income are $20,000.What is Ashley's foreign tax credit? Assume she does not qualify for the foreign-earned income exclusion.

Accepted Answer

The answer of Ashley,a U.S.citizen,works in England for part of...

Question 20

Excess foreign taxes in one basket cannot offset limitation amounts in another basket.

Accepted Answer

The foreign tax credit limitation is calculated separately for each basket of income (i.e. passive, general, and certain income) and excess foreign taxes in one basket cannot be used to offset limitation amounts in another basket.

Quiz 31: Ustaxation of Foreign-Related Transactions