Question 1

Kipp,a U.S.shareholder under the CFC provisions,owns 40% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000,Kipp is taxed on receipt of a constructive dividend of $80,000.

Accepted Answer

This is correct according to the CFC provisions. As a U.S. shareholder of a CFC (controlled foreign corporation) with Subpart F income, Kipp is subject to U.S. taxation on a portion of that income. The amount of Subpart F income is multiplied by Kipp's ownership percentage of the CFC (40%), which equals $80,000. This $80,000 is considered a constructive dividend and is included in Kipp's taxable income.

Question 2

ForCo,a subsidiary of a U.S.corporation incorporated in Belgium,manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany.The income from the sale of widgets is not Subpart F foreign base company sales income.

Accepted Answer

Since the income from the sale of widgets is not Subpart F foreign base company sales income, the statement is true.

Question 3

A U.S.taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect)paid or accrued.

Accepted Answer

A U.S. taxpayer may take a current Foreign Tax Credit (FTC) only up to the limit calculated based on their U.S. tax liability on foreign income, not exceeding the actual foreign taxes paid or accrued.

Question 4

The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

Accepted Answer

§ 482 allows the IRS to allocate income and deductions among related parties to reflect the true nature of their transactions and prevent tax avoidance.

Question 5

Income tax treaties may provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S.statutory law.

Accepted Answer

The answer of Income tax treaties may provide for either...

Question 6

A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly,indirectly,and constructively at least 50% of the voting power of a foreign corporation.

Accepted Answer

A "U.S. shareholder" for purposes of CFC (Controlled Foreign Corporation) classification is defined as a U.S. person who owns directly, indirectly, or constructively at least 10% of the total combined voting power of all classes of stock of a foreign corporation.

Question 7

The sourcing rules of Federal income taxation apply to deductions as well as to income items.

Accepted Answer

The sourcing rules of Federal income taxation apply to deductions as well as to income items. This ensures that deductions are treated consistently with the income to which they relate. For example, if a business earns income from international sources, it may also be able to deduct expenses related to generating that income, but the deduction must be allocated based on the same sourcing rules used to determine the income.

Question 8

ForCo,a non-U.S.corporation based in Aldonza,purchases widgets from USCo,Inc. ,its U.S.parent corporation.The widgets are sold by ForCo to an unrelated foreign corporation in Aldonza.The income from sale of the widgets by ForCo is Subpart F foreign base company sales income.

Accepted Answer

The income from the sale of the widgets by ForCo would not be considered Subpart F foreign base company sales income because the sale is between ForCo and an unrelated foreign corporation in Aldonza. Subpart F income typically targets income earned by controlled foreign corporations (CFCs) from artificial transactions designed to shift profits out of the United States, such as sales involving related parties, not sales to unrelated foreign corporations.

Question 9

The United States has in force income tax treaties with about 70 countries.

Accepted Answer

The United States has income tax treaties with about 70 countries in force, as of 2021.

Question 10

Twenty unrelated U.S.persons equally own all of the stock of Quigley,a foreign corporation.Quigley is a CFC.

Accepted Answer

The answer of Twenty unrelated U.S.persons equally own all of...

Question 11

Unused foreign tax credits are carried back two years and then forward 20 years.

Accepted Answer

The answer of Unused foreign tax credits are carried back...

Question 12

Winnie,Inc. ,a U.S.corporation,receives a dividend of $400,000 from a non-CFC foreign corporation.Deemed-paid foreign taxes attributable to the dividend are $120,000.If Winnie elects the FTC,its gross income attributable to this dividend is $400,000.

Accepted Answer

If Winnie elects the FTC (Foreign Tax Credit), its gross income attributable to the dividend would be reduced by the deemed-paid foreign taxes attributable to the dividend ($120,000). Therefore, the gross income attributable to the dividend would be $280,000 ($400,000 - $120,000).

Question 13

The "residence of seller" rule is used in determining the sourcing of all gross income and deductions of a U.S.multinational business.

Accepted Answer

The residence of the seller rule is not used for determining the sourcing of all gross income and deductions of a U.S. multinational business. Instead, various sourcing rules apply depending on the type of income or deduction, such as the source of income from sales of inventory, services, and intangibles, which may consider factors like where the property was produced or where the services were performed, rather than solely the residence of the seller.

Question 14

Jokerz,a CFC of a U.S.parent,generated $80,000 Subpart F foreign base company services income in its first year of operations.The next year,Jokerz distributes $50,000 cash to the parent,from those service profits.The parent is taxed on $0 in the first year (tax deferral rules apply)and $50,000 in the second year.

Accepted Answer

The U.S. parent is taxed on the $80,000 of Subpart F income in the first year it is earned by Jokerz, regardless of whether any cash is distributed. Subpart F income is taxed to the U.S. shareholders in the year it is earned, not in the year it is distributed.

Question 15

Subpart F income includes portfolio income like dividends and interest.

Accepted Answer

Subpart F income includes not only passive income such as dividends and interest, but also other types of income such as rents, royalties, and certain types of gains.

Question 16

In allocating interest expense between U.S.and foreign sources,a taxpayer elects to use either the tax basis of the income-producing assets or their fair market values.

Accepted Answer

The answer of In allocating interest expense between U.S.and foreign...

Question 17

Waltz,Inc. ,a U.S.taxpayer,pays foreign taxes of $50,000 on foreign-source general basket income of $90,000.Waltz's worldwide taxable income is $450,000,on which it owes U.S.taxes of $157,500 before FTC.Waltz's FTC is $50,000.

Accepted Answer

The answer of Waltz,Inc. ,a U.S.taxpayer,pays foreign taxes of $50,000...

Question 18

Jaime received gross foreign-source dividend income of $250,000.Foreign taxes withheld on the dividend were $25,000.Jaime's total U.S.tax liability is $800,000 (the 35% marginal tax rate applies).Jaime's current year FTC is $87,500.

Accepted Answer

The answer of Jaime received gross foreign-source dividend income of...

Question 19

U.S.individuals who receive dividends from foreign corporations may claim the deemed-paid foreign tax credit related to such dividends.

Accepted Answer

The answer of U.S.individuals who receive dividends from foreign corporations...

Question 20

Hendricks Corporation,a domestic corporation,owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation,both foreign corporations.Ferrell owns the other 60 percent of Shane Corporation.Both Shane and Ferrell are CFCs.

Accepted Answer

The given information states that Hendricks Corporation owns 40% of Shane Corporation and 55% of Ferrell Corporation, both of which are foreign corporations. It also states that Ferrell Corporation owns the remaining 60% of Shane Corporation. Since both Shane and Ferrell are foreign corporations, and Hendricks Corporation holds a controlling interest in both of them, it is likely that they are CFCs (Controlled Foreign Corporations). Therefore, the statement is true.

Quiz 16: Multijurisdictional Taxation