Deck 13: The U.S. Taxation of Multinational Transactions

Question 1

Under the book value method of allocating and apportioning interest expense for FTC purposes, assets are characterized as being either U.S. or non-U.S. based on their geographic location.

Answer 1

False
Explanation: Assets are sourced based on the type of income they produce, not their geographic location. A U.S. corporation allocates interest expense using the book value.

Question 2

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

Answer 2

False
Explanation: The source of gross profit from the sale of inventory by a U.S. retailer (e.g., Walmart) is based on where title passes. If title passes outside the U.S. (FOB: destination), the gross profit will be foreign source.

Question 3

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.

Answer 3

False
Explanation: Amy is subject to U.S. taxation under residence-based taxation.

Question 4

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary. Any income taxes paid to a Spanish taxing authority will be creditable on the U.S. tax return.

Question 5

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

Question 6

Alex, a U.S. citizen, became a resident of Belgium in 2018. 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.

Question 7

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. 

Question 8

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

Question 9

U.S. corporations are eligible for a foreign tax credit for withholding taxes imposed on dividends received from 100%-owned foreign corporations.

Question 10

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

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.

Question 12

Philippe is a French citizen. During 2018 he spent 150 days in the United States on business. Because Philippe does not spend 183 days in the United States in 2018, he will not under any circumstances be treated as a resident alien for U.S. tax purposes.

Question 13

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.

Question 14

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

Question 15

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.

Question 16

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.

Question 17

One of the tax advantages to an individual 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.

Question 18

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. individuals outside the United States.

Question 19

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.

Question 20

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.

Question 21

Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from the sale of the inventory was $300,000. Title to the inventory passed FOB: destination. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

A) $300,000
B) $150,000
C) $0
D) The answer cannot be determined with the information provided.

Question 22

A Japanese corporation owned by eleven U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.

Question 23

Santa Fe Corporation manufactured inventory in the United States and sold the inventory to customers in Mexico. Gross profit from the sale of the inventory was $200,000. Title to the inventory passed FOB: shipping point. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

A) $200,000
B) $100,000
C) $0
D) The answer cannot be determined with the information provided.

Question 24

Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $24,000 of compensation while working within the United States. She worked 60 days in the United States and 180 days in Brazil. How much of her compensation earned in the United States will be subject to U.S. tax?

A) $24,000
B) $8,000
C) $6,000
D) $0

Question 25

Gwendolyn was physically present in the United States for 90 days in 2018, 180 days in 2017, and 30 days in 2016. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2018?

A) 300
B) 155
C) 150
D) 90

Question 26

Saginaw Steel Corporation has a precredit U.S. tax of $105,000 on $500,000 of taxable income in 2018. Saginaw has $200,000 of foreign source taxable income and paid $60,000 of income taxes to the German government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Saginaw's foreign tax credit on its 2018 tax return will be:

A) $105,000
B) $60,000
C) $42,000
D) $24,000

Question 27

Subpart F income earned by a CFC will always be treated as a deemed dividend to the CFC's U.S. shareholders in the year the subpart F income is earned.

Question 28

Guido was physically present in the United States for 150 days in 2018, 120 days in 2017, and 90 days in 2016. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2018?

A) 360
B) 205
C) 190
D) 150

Question 29

Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?

A) Income that is characterized as effectively connected income is subject to net taxation while income that is characterized as fixed and determinable, annual or periodic income is subject to a withholding tax applied to gross income.
B) Income that is characterized as effectively connected income is subject to a withholding tax applied to gross income while income that is characterized as fixed and determinable, annual or periodic income is subject to net taxation.
C) All U.S. source income is subject to net taxation, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.
D) All U.S. source income is subject to a withholding tax applied to gross income, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.

Question 30

Ames Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in 2018. Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the U.K. government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Ames's foreign tax credit on its 2018 tax return will be:

A) $210,000
B) $126,000
C) $120,000
D) $72,000

Question 31

All income earned by a Swiss corporation owned by a U.S. corporation is deferred from U.S. taxation until such income is remitted back to the United States.

Question 32

All passive income earned by a CFC will be treated as foreign personal holding company income under subpart F for U.S. tax purposes.

Question 33

Which of the following statements best describes the substantial presence test as it applies to determining if a non-U.S. citizen is a resident alien for U.S. tax purposes?

A) To be treated as a resident alien, an individual must be physically present in the United States for 183 days in the current year.
B) To be treated as a resident alien, an individual must be physically present in the United States for 183 days in the current year and each of the prior two years.
C) To be treated as a resident alien, an individual must be physically present in the United States for 183 days equivalent using a formula that includes the current year and the prior two years.
D) To be treated as a resident alien, an individual must be physically present in the United States for 183 days equivalent using a formula that includes the current year and the prior year.

Question 34

Austin Corporation, a U.S. corporation, received the following investment income during 2018: $50,000 of dividend income from ownership of stock in a French corporation, $20,000 interest on a loan to its Dutch subsidiary, $40,000 royalty from its 50-percent owned Irish venture, and $30,000 capital gain from sale of its stock in a Brazilian corporation. How much foreign source income does Austin have in 2018?

A) $140,000
B) $110,000
C) $70,000
D) $60,000

Question 35

Which statement best describes the U.S. framework for taxing multinational transactions?

A) The U.S. government applies source-based taxation to income earned by U.S. and non-U.S. persons.
B) The U.S. government applies residence-based taxation to income earned by U.S. and non-U.S. persons.
C) The U.S. government applies residence-based taxation to income earned by U.S. persons and source-based taxation to income earned by non-U.S. persons.
D) The U.S. government applies source-based taxation to income earned by U.S. persons and residence-based taxation to income earned by non-U.S. persons.

Question 36

Which statement best describes the U.S. framework for determining if an individual who is not a U.S. citizen will be treated as a resident alien for U.S. tax purposes?

A) A person must have a green card and meet a substantial presence test to be treated as a resident alien for U.S. tax purposes.
B) A person must have a green card to be treated as a resident alien for U.S. tax purposes.
C) A person must meet a substantial presence test to be treated as a resident alien for U.S. tax purposes.
D) A person with a green card will always be treated as a resident alien for U.S. tax purposes, while a person without a green card may be treated as a resident alien if she meets a substantial presence test.

Question 37

To be eligible for the "closer connection" exception to the physical presence test, an individual must be in the United States for less than how many days?

A) 31
B) 61
C) 181
D) 183

Question 38

Russell Starling, an Australian citizen and resident, received the following investment income during 2018: $5,000 of dividend income from ownership of stock in a U.S. corporation, $10,000 interest from a certificate of deposit in a U.S. bank, $3,000 of interest income earned from a loan to Clint Westwood, a U.S. citizen, and $2,000 capital gain from sale of a stock in a U.S. corporation. How much of Russell's income will be subject to U.S. taxation in 2018?

A) $20,000
B) $15,000
C) $10,000
D) $8,000

Question 39

Under which of the following scenarios could Charles, a citizen of England, be eligible to claim the "closer connection" exception to the substantial presence test in 2018?

A) Charles spent 183 days in the United States in 2018 and has his tax home in England.
B) Charles spent 183 days in the United States in 2018 and has his tax home in the United States.
C) Charles spent 182 days in the United States in 2018 and has his tax home in England.
D) Charles spent 182 days in the United States in 2018 and has his tax home in the United States.

Question 40

A U.S. corporation can use hybrid entities to avoid the application of subpart F to cross border payments made between wholly owned entities outside the United States.

Question 41

Under a U.S. treaty, what must a non-resident corporation create in the United States before it is subject to U.S. taxation on its business profits?

A) U.S. trade or business.
B) Permanent establishment.
C) The physical presence of at least one employee.
D) The physical presence of an asset such as a warehouse.

Question 42

Which of the following foreign taxes is not a creditable foreign tax for U.S. tax purposes?

A) Income tax paid to the government of Portugal
B) Income tax paid to the city of Amsterdam
C) Value-added tax paid to the government of France
D) All of these taxes are creditable

Question 43

Which of the following foreign taxes are not creditable for U.S. tax purposes?

A) Direct taxes paid by a U.S. corporation on income earned in a foreign branch.
B) Income taxes paid to a foreign taxing authority on a dividend received by a U.S. corporation from its 100 percent owned foreign subsidiary.
C) Withholding taxes imposed on a dividend received by a U.S. corporation from its 100 percent owned foreign subsidiary.
D) All of these taxes are creditable.

Question 44

A rectangle with a triangle within it is a symbol used to represent what organizational form?

A) Partnership
B) Corporation
C) Hybrid entity treated as a branch for U.S. tax purposes
D) Hybrid entity treated as a partnership for U.S. tax purposes

Question 45

Which of the following expenses incurred by a U.S. corporation is not subject to special apportionment rules for foreign tax credit purposes?

A) Interest
B) Research and experimental
C) Advertising
D) State and local income taxes

Question 46

Hanover Corporation, a U.S. corporation, incurred $300,000 of interest expense during 2018. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value of its production assets is $20,000,000. The total tax book value of its foreign production assets is $5,000,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation and the interest expense is fully deductible?

A) $300,000
B) $100,000
C) $75,000
D) $60,000

Question 47

Which of the following tax benefits does not arise when a U.S. corporation forms a corporation in Ireland through which to earn business profits in Ireland?

A) Potential exemption of U.S. tax on income earned by the corporation.
B) Treaty benefits on cross border payments between the Irish corporation and the U.S. corporation.
C) Use of transfer pricing to shift income between the United States and Ireland.
D) Flow-through of losses from the Irish corporation to the tax return of the U.S. corporation.

Question 48

What form is used by a U.S. corporation to "check-the-box" to elect the U.S. tax consequences of forming a hybrid entity outside the United States?

A) Form 1118
B) Form 1120
C) Form 8832
D) Form 8833

Question 49

Which of the following tax rules applies to an excess foreign tax credit (FTC) that arises in 2018?

A) The excess FTC is first carried back to 2017 and any excess is carried forward for 10 years.
B) The excess FTC is first carried back to 2016, then 2017, and any excess is carried forward for 20 years.
C) The excess FTC is first carried back to 2015, then 2016, then 2017, and any excess is carried forward for 5 years.
D) The excess FTC is carried forward 10 years, with no carryback allowed.

Question 50

Which of the following is not a benefit derived from an income tax treaty between the United States and another country?

A) Lower withholding tax rates imposed on cross border dividend and interest payments.
B) A higher threshold for determining when a person has nexus in the other country.
C) Lower statutory tax rates imposed on effectively connected income earned by a resident of one country in the other country.
D) A higher threshold before an individual is considered a resident of the other country for tax purposes.

Question 51

Bismarck Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in 2018. Bismarck has $200,000 of foreign source taxable income characterized as foreign branch income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the foreign branch income and $10,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Bismarck use on its 2018 U.S. tax return and what is the amount of the carryforward, if any?

A) $90,000 FTC with $0 carryforward
B) $52,000 FTC with $0 carryforward
C) $52,000 FTC with $38,000 carryforward
D) $16,500 FTC with $73,500 carryforward

Question 52

A U.S. corporation reports its foreign tax credit computation on which tax form?

A) Form 1116
B) Form 1118
C) Form 1120
D) Form 8832

Question 53

Absent a treaty provision, what is the statutory withholding tax rate imposed by the United States on a dividend paid by a U.S. corporation to a resident of Denmark?

A) 30%
B) 15%
C) 5%
D) 0%

Question 54

Manchester Corporation, a U.S. corporation, incurred $100,000 of interest expense during 2018. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value of its U.S. production assets is $20,000,000. The total tax book value of its foreign production assets is $5,000,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation and the interest expense is fully deductible in 2018?

A) $0
B) $20,000
C) $25,000
D) $100,000

Question 55

Provo Corporation, a U.S. corporation, received a dividend of $350,000 from its 100 percent owned German subsidiary. A withholding tax of $35,000 was imposed on the dividend. What are the U.S. tax consequences to Provo on receipt of the dividend, assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S. operations?

A) Taxable income of $350,000, net U.S. tax liability of $0, and $14,000 FTC carryforward
B) Taxable income of $350,000, net U.S. tax liability of $20,000, and $0 FTC carryforward
C) Taxable income of $0 and $35,000 FTC carryforward
D) Taxable income of $0 and $0 FTC carryforward

Question 56

Which of the following items of foreign source income is classified as passive category income for foreign tax credit purposes?

A) Dividend received from a 5 percent owned foreign corporation, all of the income of which is derived from an active business.
B) Dividend received from a 20 percent owned foreign corporation, all of the income of which is derived from an active business.
C) Dividend received from a 100 percent owned foreign corporation, all of the income of which is derived from an active business.
D) None of the dividends in the scenarios listed above are classified as passive category income.

Question 57

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2018. Boca also received a dividend of $100,000 from the corporation's 100 percent owned subsidiary in Italy. The Italian government imposed a withholding tax of $5,000 on the dividend. Compute Boca Corporation's net U.S. tax liability for 2018.

A) $231,000
B) $227,000
C) $210,000
D) $205,000

Question 58

Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?

A) Potential exemption of U.S. tax on income earned by the corporation.
B) Flow-through of losses from the German corporation to the tax return of the U.S. corporation.
C) Limited liability to the U.S. corporation for acts committed by the hybrid entity.
D) Free transferability of the stock of the hybrid entity by the U.S. corporation.

Question 59

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. source taxable income of $2,000,000 before considering the dividend received from Horton Corporation. Compute the tax consequences to Cruller as a result of this dividend.

A) Taxable income of $2,600,000,  net U.S. tax of $516,000, and FTC carryover of $0
B) Taxable income of $2,600,000, net U.S. tax of $546,000, and  FTC carryover of $30,000
C) Taxable income of $2,000,000, net U.S. tax of $390,000, and FTC carryover of $0
D) Taxable income of $2,000,000, net U.S. tax of $420,000, and FTC carryover of $0

Question 60

Pierre Corporation has a precredit U.S. tax of $315,000 on $1,500,000 of taxable income in 2018. Pierre has $300,000 of foreign source taxable income characterized as foreign branch income and $150,000 of foreign source taxable income characterized as passive category income. Pierre paid $60,000 of foreign income taxes on the foreign branch income and $15,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Pierre use on its 2018 U.S. tax return and what is the amount of the carryforward, if any?

A) $315,000 FTC with $0 carryforward
B) $75,000 FTC with $0 carryforward
C) $13,500 FTC with $61,500 carryforward
D) $13,500 FTC with $0 carryforward

Question 61

A rectangle with an inverted triangle within it is a symbol used to represent what organizational form?

A) Partnership
B) Corporation
C) Hybrid entity treated as a corporation for U.S. tax purposes
D) Hybrid entity treated as a partnership for U.S. tax purposes

Question 62

Which of the following statements best describes the operation of subpart F as it applies to income earned by a foreign corporation?

A) Subpart F causes all income of a controlled foreign corporation to be treated as a deemed dividend to all U.S. persons owning stock in the corporation on the last day of the corporation's tax year.
B) Subpart F causes certain income of a controlled foreign corporation to be treated as a deemed dividend to all U.S. persons owning stock in the corporation on the last day of the corporation's tax year.
C) Subpart F causes certain income of a controlled foreign corporation to be treated as a deemed dividend to only those U.S. shareholders owning stock in the corporation on the last day of the corporation's tax year.
D) Subpart F causes all income of a controlled foreign corporation to be treated as a deemed dividend to only those U.S. shareholders owning stock in the corporation on the last day of the corporation's tax year.

Question 63

Holmdel, Inc., a U.S. corporation, received the following sources of income during 2018:
$10,000 interest income from a loan to its 100 percent owned Swiss subsidiary
$50,000 dividend income from its 5 percent owned French subsidiary
$100,000 royalty income from its Bermuda subsidiary for use of a trademark outside the United States
$25,000 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey
$50,000 capital gain from sale of stock in its 40 percent owned Japanese joint venture. Title passed in Japan.
What amount of foreign source income does Holmdel have in 2018?

Question 64

Natsumi is a citizen and resident of Japan. She has a full-time job in Japan and has lived there with her family for the past 20 years. In 2016, Natsumi came to the United States on business and stayed for 240 days. She came to the United States again on business in 2017 and stayed for 120 days. In 2018 she came back to the United States on business and stayed for 120 days. Does Natsumi meet the U.S. statutory definition of a resident alien in 2018 under the substantial presence test?

Question 65

Nicole is a citizen and resident of Australia. She has a full-time job in Australia and has lived there with her family for the past 10 years. In 2016, Nicole came to the United States on business and stayed for 180 days. She came to the United States again on business in 2017 and stayed for 150 days. In 2018 she came back to the United States on business and stayed for 100 days. Does Nicole meet the U.S. statutory definition of a resident alien in 2018 under the substantial presence test?

Question 66

Which of the following exceptions could cause subpart F income to be excluded from the deemed dividend regime?

A) The full inclusion rule only
B) The de minimis rule only
C) The high tax rule only
D) The de minimis rule and the high tax rule could cause subpart F income to be excluded from the deemed dividend regime.

Question 67

Which of the following income earned by a controlled foreign corporation incorporated in Spain is not foreign personal holding company income?

A) Interest income received from a loan to an unrelated party.
B) Dividend income from a five percent investment in an unrelated corporation.
C) Rent received from a passive investment in an apartment complex.
D) Gross profit from the manufacture and sale of inventory to an unrelated party.

Question 68

Before subpart F applies, a foreign corporation must be a CFC for how many consecutive days?

A) 1
B) 30
C) 183
D) 365

Question 69

Gouda, S.A., a Belgium corporation, received the following sources of income during 2018:
$10,000 interest income from a loan to its 100 percent owned Dutch subsidiary
$20,000 dividend income from its 100 percent owned U.S. subsidiary
$30,000 royalty income from its Irish subsidiary for use of a trademark outside the United States
$40,000 rent income from its Canadian subsidiary for use of a warehouse located in Wisconsin
$5,000 capital gain from sale of stock in its 40 percent owned New Zealand joint venture. Title passed in New Zealand.
What amount of U.S. source income does Gouda have in 2018?

Question 70

Which of the following persons should not be treated as a "U.S. shareholder" of a controlled foreign corporation (CFC) for subpart F purposes?

A) A U.S. citizen owning 5 percent of the CFC.
B) A U.S. citizen owning 15 percent of the CFC.
C) A U.S. corporation owning 15 percent of the CFC.
D) All of the above named persons are U.S. shareholders for subpart F purposes.

Question 71

Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in 2018. Taxable income included $1,800,000 of foreign source taxable income from the company's branch operations in Canada. All of the branch income is foreign branch income. Reno paid Canadian income taxes of $450,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover for 2018. Assume an exchange rate of C$1 = $1.

Question 72

Boomerang Corporation, a New Zealand corporation, is owned by the following unrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and 45 percent by an Australian corporation. During the year, Boomerang earned $3,000,000 of subpart F income. Which of the following statements is True about the application of subpart F to the income earned by Boomerang?

A) Boomerang is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $1,200,000 and $450,000, respectively.
B) Boomerang is a CFC and only the U.S. corporation will have a deemed dividend of $1,200,000.
C) Boomerang is a CFC and the U.S. corporation, U.S. individual, and Australian corporation will have a deemed dividend of $1,200,000, $450,000, and $1,350,000, respectively.
D) Boomerang is not a CFC and none of the shareholders will have a deemed dividend under subpart F.

Question 73

Jesse Stone is a citizen and bona fide resident of Great Britain. During 2018, Jesse received the following income:
Compensation of $10 million from performing concerts in the United States
Cash dividends of $20,000 from a U.S. corporation
Interest of $1,000 from a U.S. citizen who is a resident of Ireland
Rent of $10,000 from British residents who rented Jesse's townhouse in Orlando, Florida
Gain of $50,000 on the sale of stock in a U.S. corporation
Determine the source (U.S. or foreign) of each item of income Jesse received in 2018.

Question 74

Obispo, Inc., a U.S. corporation, received the following sources of income during 2018:
$20,000 interest income from a loan to its 100 percent owned U.S. subsidiary.
$30,000 dividend income from its 5 percent owned Canadian subsidiary.
$50,000 royalty income from its Irish subsidiary for use of a trademark within the United States.
$40,000 rent income from its Dutch subsidiary for use of a warehouse located in Belgium.
$3,000 capital gain from sale of stock in its 40 percent owned Mexican joint venture. Title passed in the United States.
What amount of foreign source income does Obispo have in 2018?

Question 75

Which of the following transactions engaged in by a Swiss controlled foreign corporation creates foreign base company sales income?

A) Purchase of inventory from an unrelated person in Germany and sale to a related person in Poland.
B) Purchase of inventory from a related person in Germany and sale to an unrelated person in Switzerland.
C) Purchase of inventory from a related person in Germany and sale to a related person in Poland.
D) Purchase of inventory from an unrelated person in Germany and sale to an unrelated person in Poland.

Question 76

Vintner, S.A., a French corporation, received the following sources of income during 2018:
$20,000 interest income from a loan to its 100 percent owned U.S. subsidiary
$30,000 dividend income from its 5 percent owned Canadian subsidiary
$100,000 royalty income from its Irish subsidiary for use of a trademark within the United States
$100,000 rent income from its Mexican subsidiary for use of a warehouse located in Arizona
$50,000 capital gain from sale of stock in its 40 percent owned German joint venture. Title passed in the United States.
What amount of U.S. source income does Vintner have in 2018?

Question 77

Jimmy Johnson, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. In June 2018, General Motors relocated Jimmy to its operations in Germany for the remainder of 2018. Jimmy was paid a salary of $250,000. As part of his compensation package for moving to Germany, Jimmy received a cost of living allowance of $30,000, which was paid to him only while he worked in Germany. Jimmy's salary was earned ratably over the twelve-month period. During 2018 Jimmy worked 260 days, 130 of which were in Germany and 130 of which were in the United States. How much of Jimmy's total compensation is treated as foreign source income for 2018?

Question 78

Janet Mothra, a U.S. citizen, is employed by Caterpillar Corporation, a U.S. corporation. In May 2018, Caterpillar relocated Janet to its operations in Spain for the remainder of 2018. Janet was paid a salary of $200,000. As part of her compensation package for moving to Spain, Janet received a housing allowance of $40,000. Janet's salary was earned ratably over the twelve-month period. During 2018 Janet worked 280 days, 168 of which were in Spain and 112 of which were in the United States. How much of Janet's total compensation is treated as foreign source income for 2018?

Question 79

Appleton Corporation, a U.S. corporation, reported total taxable income of $10,000,000 in 2018. Taxable income included $2,500,000 of foreign source taxable income from the company's branch operations in the United Kingdom. All of the branch income is foreign branch income. Appleton paid U.K. income taxes of $500,000 on its branch income. Compute Appleton's net U.S. tax liability and any foreign tax credit carryover for 2018.

Question 80

Windmill Corporation, a Dutch corporation, is owned by the following unrelated persons: 50 percent by a U.S. corporation, 5 percent by a U.S. individual, and 45 percent by a Swiss corporation. During the year, Windmill earned $2,000,000 of subpart F income. Which of the following statements is True about the application of subpart F to the income earned by Windmill?

A) Windmill is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $1,000,000 and $100,000, respectively.
B) Windmill is a CFC and only the U.S. corporation will have a deemed dividend of $1,000,000.
C) Windmill is a CFC and the U.S. corporation, U.S. individual, and Swiss corporation will have a deemed dividend of $1,500,000, $100,000, and $900,000, respectively.
D) Windmill is not a CFC and none of the shareholders will have a deemed dividend under subpart F.