Deck 12: International Taxation

Question 1

Exchange gains and losses of a U.S.corporation are taxed as ordinary income or losses, regardless of the type of transaction involved.

Answer 1

False

Question 2

An Irish partnership has $400,000 of net income in the current year.None of the income is from U.S.sources.F, a U.S.citizen living in Dublin, has a distributive share of $40,000 (e.g., a 10% owner).If F performs services for the partnership valued at $13,000 and capital is not a material income-producing factor, how much foreign unearned income does F have?

A)$17,000
B)$25,000
C)$27,000
D)$13,000

Answer 2

C

Question 3

A U.S.corporation may not claim, as a deduction or a credit, foreign taxes paid by a foreign corporation unless the U.S.corporation directly owns more than 50 percent of the foreign corporation.

Answer 3

False

Question 4

Although Congressional intent in creating the Controlled Foreign Corporation (CFC) legislation was to penalize inactive corporations located in tax-haven countries, active corporations that are not organized primarily to avoid U.S.taxation are subject to the CFC provisions.

Question 5

The source of dividend income is determined by the country of residence of the corporation paying the dividend.

Question 6

Which of the following options can be legally employed by individuals to decrease the double tax burden from foreign source income?

A)Qualifying individuals may elect to exclude foreign-earned income up to certain statutory limits.
B)Direct foreign taxes may be reported as an itemized deduction.
C)Direct foreign taxes may be claimed as a credit against U.S.taxes.
D)All of the above

Question 7

It is a uniform, worldwide precept that dealings between units of the same multinational organization must be based on market values.

Question 8

The source of employee compensation is determined by the country of residence of the employer paying the compensation.

Question 9

A U.S.parent corporation that understates the transfer price of goods sold to a profitable foreign branch increases its foreign tax credit limitation.

Question 10

Foreign taxes accrued on dividends cannot be claimed as a business deduction or a tax credit by a U.S.corporation.

Question 11

A manufacturing corporation can be located in a tax-haven country in order to avoid foreign taxes without being considered a Controlled Foreign Corporation.

Question 12

The jurisdictional principle limits U.S.taxation on income to that earned only within the nation's borders.

Question 13

To ensure avoidance of U.S.taxation on transfers between subsidiaries of a U.S.-based multinational parent, holding companies are established in tax-haven countries.

Question 14

U.S.citizens employed by the U.S.National Weather Service in the foreign country of Timbuktu qualify as bona fide residents if they reside in Timbuktu the entire year.

Question 15

Generally, a U.S.citizen who has foreign-earned income should elect the earned income exclusion when the U.S.effective tax rate exceeds the foreign effective tax rate.

Question 16

Foreign taxes paid by individuals may be used as a current-year itemized deduction, or a tax credit.

Question 17

A U.S.corporation operating in a foreign country may be assessed income taxes on the same income by both the United States and by the country in which it operates.

Question 18

Resident and nonresident aliens are taxed in the same manner on U.S.corporate dividend income, bond interest, and interest earned on a U.S.bank savings account.

Question 19

U.S.corporations with foreign branches must use the net worth method to determine their exchange gains and losses.

Question 20

Net losses of a foreign subsidiary that is wholly owned by a U.S.corporation are deductible by the U.S.corporation as of the end of the foreign corporation's taxable year.

Question 21

Which of the following statements is false concerning § 482 and its aim of reallocating income and deductions among affiliated companies?

A)Pricing reallocations made by the IRS are generally sustained by the courts unless found to be arbitrary or capricious.
B)There is an assumption that the prices set for transactions among affiliated companies are based on tax avoidance.
C)It is the affiliated companies' responsibility to persuade the IRS that their pricing policies are the same as policies followed by unaffiliated companies.
D)Proof that a company's pricing decisions are based on sound business reasons is sufficient to avoid any reallocation by the IRS under § 482.

Question 22

T, Inc., has $60,000 U.S.source income, $40,000 grossed-up foreign source income, and $16,000 foreign taxes deemed paid by T.T's foreign tax credit is

A)$16,000
B)$15,420
C)$8,900
D)$5,700

Question 23

Corporation X has one class of outstanding stock valued at $100 million.Six U.S.stockholders own equal portions of X stock and control 54 percent of the stock.How much additional stock would have to be acquired by any one of the U.S.stockholders in order for the corporation to qualify as a Controlled Foreign Corporation?

A)$5 million worth of X stock
B)$ 1 million worth of X stock
C)$ 100,000 worth of X stock
D)$46 million worth of X stock

Question 24

A U.S.-based multinational parent corporation owns 75 percent of a Mexican corporation.The Mexican corporation owns 100 percent of a Panamanian company.Panama is a tax-haven country.The Panamanian company is a controlled foreign corporation (CFC) and all of its $250,000 income is Subpart F income.If none of the companies paid dividends, how much dividend income must the U.S.-based parent recognize?

A)$187,500
B)$150,000
C)$100,000
D)$25,000

Question 25

K Corporation's branch operation in Sweden had net profits for 2012 of 300,000 Kronas.It received 30,000 Kronas from the branch at the end of each quarter.Assume that the exchange rates of Swedish Kronas per U.S.dollar were $$\begin{array} {lll } 1 / 1 / 2012 = 7.40 & 9 / 30 / 2012 = 7.60 \\3 / 31 / 2012 = 7.40 & 12 / 31 / 2012 = 7.60 \\6 / 30 / 2012 = 7.50 & 2012 \text { weighted } = 7.50\end{array}$$ Under the profit and loss method, K Corporation reports branch profits of (the answer is rounded to the nearest dollar.)

A)$40,540
B)$40,000
C)$39,949
D)$39,474

Question 26

T, a U.S.citizen who has been a resident of France for three years, has the following income in 2012 from French sources: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Salary $\quad$$\quad$ Interest Income
Gross amount $\quad\quad\quad\quad\quad\$ 70,000 \quad \$ 30,000$
French income tax $( 30 \% ) \quad ( 21,000 ) \quad ( 9,000 )$
Net cash received $( 70 \% ) \quad \$ 49,000 \quad \$ 21,000$ The interest income was from a French bank on her savings account.In addition, T's employer provided her with housing costing $20,000, which was not subject to French tax.T also has U.S.-source earned income of $48,000.T's foreign tax eligible for the foreign tax credit (before any foreign tax credit limitations are applied) is

A)$0
B)$9,000
C)$21,000
D)$30,000
E)some other amount, which is $

Question 27

T, a U.S.citizen who has been a resident of France for three years, has the following income in 2011 from French sources: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Salary $\quad$$\quad$ Interest Income
Gross amount $\quad\quad\quad\quad\quad\$ 70,000 \quad \$ 30,000$
French income tax $( 30 \% ) \quad ( 21,000 ) \quad ( 9,000 )$
Net cash received $( 70 \% ) \quad \$ 49,000 \quad \$ 21,000$ The interest income was from a French bank on her savings account.In addition, T's employer provided her with housing costing $20,000, which was not subject to French tax.T also has U.S.-source earned income of $48,000.T's minimum includible gross income subject to U.S.federal income taxes is

A)$0
B)$48,000
C)$78,000
D)$93,216
E)Some other amount, which is $__________

Question 28

Several tax provisions are liberalized for U.S.citizens working abroad.Which one of the following benefits is iⁿcorrect?

A)Deductible foreign moving expenses include costs of storing furniture.
B)The tax return due date for calendar year taxpayers is June 15.
C)U.S.-source earned income received while a foreign resident is excludable income up to certain limits.
D)The period to replace a foreign residence in order to defer capital gain is doubled for taxpayers who continue to live outside the United States.

Question 29

N, Inc., owns 25 percent of a German corporation whose taxable income is $200,000 and that pays German income taxes at a rate of 20 percent.The German corporation pays a cash dividend of 75 percent of the after-tax income and Germany has a withholding tax of 10 percent.N, Inc., has grossed-up foreign source income of

A)$24,500
B)$27,000
C)$30,000
D)$37,500

Question 30

P Corporation is the U.S.-based parent of F Company, a French-based branch.If P Corporation has U.S.taxable income of $100,000 and F Company has a $20,000 loss, what is P Corporation's worldwide taxable income?

A)$120,000
B)$100,000
C)$80,000
D)$0

Question 31

A U.S.corporation established a 100 percent owned business in Germany.The U.S.corporation has U.S.source income in the current year of $300,000.The German business reports the following information for the current year: German-source net income $\quad$$\$ 200,000$
German income $\operatorname { tax }\quad\quad ( 80,000 )$
Net income after taxes $\quad$ $\$ 120,000$
Cash remitted to U.S. owner $\quad$ $\$ 30,000$
German withholding $\operatorname { tax } \quad ( 3,000 )$
Cash received by U.S. owner $\quad \$ 27,000$ Assume the business is a foreign corporation.For simplicity, assume the U.S.Federal income tax for the U.S.corporation on its worldwide income is $119,000.The U.S.corporation's foreign tax credit carryover for the current year (rounded to the nearest $100) is

A)$0
B)$6,000
C)$17,000
D)$23,000
E)Some other amount, which is $________________

Question 32

A U.S.corporation established a 100 percent owned business in Germany.The U.S.corporation has U.S.source income in the current year of $300,000.The German business reports the following information for the current year: $$\begin{array} { l r } \text { German-source net income } & \$ 200,000 \\\text { German income tax } & ( 80,000 ) \\\text { Net income after taxes } & \$ 120,000 \\\text { Cash remitted to U.S. owner } & \$ 30,000 \\\text { German withholding tax } & ( 3,000 ) \\\text { Cash received by U.S. owner } & \$ 27,000\end{array}$$ Assume the business is a branch.The U.S.corporation's worldwide taxable income (before foreign tax deductions or credits) is

A)$300,000
B)$330,000
C)$350,000
D)$500,000
E)Some other amount, which is $____________

Question 33

P, a single taxpayer, meets the bona fide residence test while employed in New Zealand.During 2012, she has (1) wages of $52,000, (2) interest income from a local bank of $1,400, (3) interest income from a U.S.bank of $1,200, (4) dividend income from New Zealand corporate stock of $200, and (5) employer-provided housing valued at $9,600.Assume all amounts are in U.S.dollars.P has excludable foreign source income of

A)$63,000
B)$61,600
C)$61,060
D)$58,660

Question 34

J, an unmarried resident and citizen of Z, receives the following income from U.S.sources: (1) $1,850 dividend income from U.S.corporations, (2) $400 corporate bond interest income, (3) $550 interest income on a loan to a U.S.citizen, and (4) $2,795 interest income from a savings and loan association.Z does not have a tax treaty with the United States.J will receive cash from the U.S.sources of

A)$5,595
B)$4,943
C)$4,755
D)$3,916.50

Question 35

L, a U.S.citizen, is transferred to Singapore for a three-year assignment.L establishes residency in Singapore on his day of arrival, April 3, 2012.Due to family illness, L returns to the United States and stays the entire month of December 2012 and the first 14 days in May 2013; he is transferred back to the United States June 4, 2013.During this 14-month period, L was in Tokyo on business two days each month (except December).L recaps his days as follows: $\begin{array}{lll}&2012&2013&\text { Total }\\\text { In the United States }&31 & 14 & 45 \\\text { In Tokyo }&16&10 & 26 & \\\text { In Singapore }&225 & 131 & 356\end{array}$ L meets

A)The bona fide residence test in 2013
B)The physical presence test in 2013
C)Both the bona fide residence and physical residence tests in 2013
D)Neither the bona fide residence nor the physical presence test in 2013

Question 36

X is a U.S.citizen who lives and works in Illinois for K, Inc., a U.S.corporation.Her wages this year are $19,250.She also received $4,000 in dividends from a Japanese corporation with no U.S.source income.The Japanese corporation withheld $440, disbursing the rest to X.X is a single non-itemizer with no other income and no dependents.Her 2011 U.S.Federal income tax is

A)$1,113
B)$1,084
C)$1,553
D)$1,188

Question 37

A U.S.resident, visiting West Germany, sells his personal Mercedes Benz to a German citizen.What kind of income does such a transaction produce for the U.S.resident?

A)U.S.source income
B)Foreign source income
C)Unearned income
D)Exempt income

Question 38

In which situation must U.S.taxpayers use the U.S.dollar for recording international transactions?

A)When the taxpayer is the creditor or debtor of a foreign currency debt
B)When the taxpayer accrues foreign currency receivables or payables for income and expense items
C)For ordinary gains and losses that arise in the normal course of busines
D)When disposing of foreign currency

Question 39

A U.S.corporation established a 100 percent owned business in Germany.The U.S.corporation has U.S.source income in the current year of $300,000.The German business reports the following information for the current year: $$\begin{array} { l r } \text { German-source net income } & \$ 200,000 \\\text { German income tax } & ( 80,000 ) \\\text { Net income after taxes } & \$ 120,000 \\\text { Cash remitted to U.S. owner } & \$ 30,000 \\\text { German withholding tax } & ( 3,000 ) \\\text { Cash received by U.S. owner } & \$ 27,000\end{array}$$ Assume the business is a branch.The foreign taxes deemed paid by the U.S.corporation (before any limitations are applied) is

A)$3,000
B)$80,000
C)$83,000
D)$83,900
E)Some other amount, which is $______________

Question 40

A U.S.corporation established a 100 percent owned business in Germany.The U.S.corporation has U.S.source income in the current year of $300,000.The German business reports the following information for the current year: German-source net income $\quad$$\$ 200,000$
German income $\operatorname { tax }\quad\quad ( 80,000 )$
Net income after taxes $\quad$ $\$ 120,000$
Cash remitted to U.S. owner $\quad$ $\$ 30,000$
German withholding $\operatorname { tax } \quad ( 3,000 )$
Cash received by U.S. owner $\quad \$ 27,000$ Assume the business is a foreign corporation.The U.S.corporation's worldwide taxable income (before foreign tax deductions or credits) is

A)$300,000
B)$330,000
C)$350,000
D)$380,000
E)Some other amount, which is $_______________

Question 41

A blocked currency is one with exchange restrictions.Taxpayers with income in blocked currencies may elect to defer their U.S.taxes until any of the following occur except

A)Blockage restrictions are removed.
B)The blocked currency is used for nondeductible expenditures.
C)When a taxpayer who is a resident alien terminates U.S.residency status.
D)When the blocked currency can be used in the foreign country.