Question 1

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-A non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

Accepted Answer

Controlled foreign corporations (CFCs) are non-U.S. companies controlled by U.S. shareholders, and their income can be taxed to the U.S. parent before it is actually repatriated. This is to prevent U.S. entities from deferring U.S. tax by holding profits in foreign subsidiaries.

Question 2

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-Upon repatriation to a CFC, it does not create dividend income.

Accepted Answer

Previously taxed income (PTI) refers to earnings of a Controlled Foreign Corporation (CFC) that have already been taxed to the U.S. shareholder under the Subpart F or Global Intangible Low-Taxed Income (GILTI) provisions. Upon repatriation, these earnings do not create dividend income because they have already been included in the gross income of the U.S. shareholder.

Question 3

Match the definition with the correct term.
-A non-U.S. citizen who holds a "green card."

Accepted Answer

A "green card" holder is considered a resident alien for tax purposes in the United States, not an expatriate, nonresident alien, U.S. trade or business, or effectively connected income. This status allows them to live and work permanently in the U.S.

Question 4

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-A CFC's profits from sales of goods and services.

Accepted Answer

Foreign base company income refers to income earned by a Controlled Foreign Corporation (CFC) from certain types of passive income or income from sales and services that do not meet specific requirements related to economic connection with the CFC's country of incorporation.

Question 5

Match the definition with the correct term.
-Method for sourcing income and deductions.

Accepted Answer

Allocation and apportionment is the method used to determine how income and deductions are sourced for tax purposes.

Question 6

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-Portfolio income treated as Subpart F income.

Accepted Answer

Foreign personal holding company income is a type of foreign base company income that includes portfolio income and is treated as Subpart F income.

Question 7

Goolsbee, Inc., a U.S. corporation, generates U.S.-source and foreign-source gross income. Goolsbee's assets (tax basis) are as follows. $\begin{array}{lr}
\text { Generating U.S.-source income } & \$ 15,000,000 \
\text { Generating foreign-source income } & 25,000,000 \
\text { Total } & \$ 40,000,000
\end{array}$ Goolsbee incurs interest expense of $200,000. Apportion interest expense to foreign-source income.

Accepted Answer

The answer of Goolsbee, Inc., a U.S. corporation, generates U.S.-source...

Question 8

Match the definition with the correct term.
-Activity that creates the potential for effectively connected income.

Accepted Answer

U.S. trade or business activity creates the potential for income to be considered effectively connected income, which is significant for tax purposes for nonresident aliens and foreign corporations engaged in trade or business within the U.S.

Question 9

Match the definition with the correct term.
-Foreign taxpayers earning income inside the United States.

Accepted Answer

Inbound taxation refers to the tax principles and regulations that apply to foreign individuals or entities earning income within a country, in this case, the United States.

Question 10

Given the following information, determine whether FanCo, a foreign corporation, is a CFC.
Shareholders of Voting
Foreign Corporation Power Classification Murray 24% U.S. person Nancy 20% U.S. person Otto 40% Foreign person Patricia 16% U.S. person
Patricia is Murray's daughter.

Accepted Answer

The answer of Given the following information, determine whether FanCo,...

Question 11

Match the definition with the correct term.
-An individual who gives up U.S. citizenship to avoid U.S. income taxes.

Accepted Answer

An expatriate is someone who renounces their citizenship, and in this context, it specifically refers to an individual giving up U.S. citizenship, potentially to avoid U.S. income taxes.

Question 12

During year 4, Josita, an NRA, receives interest income of $50,000 from Talmadge, Inc., an unrelated U.S. corporation. Considering the following facts related to Talmadge's operations, what is the sourcing of the interest income received by Josita? $\begin{array}{lccc} 
& \text { U.S.-source } & \text { Active Foreign } & \text { Total Gross } \
\text { Year } & \text { Income } & \text { Business Income } & \text { Income } \
\text { Year 1 } & \$ 200,000 & \$ 500,000 & \$ 700,000\
\text { Year 2 } & 50,000 & \$ 50,000 & 1,000,000 \
\text { Year 3 } & \underline{100,000} & {900,000}& \underline{1,000,000} \
\text { Totals } & \underline{\$350,000}&\underline{\$ 2,350,000} & \underline{\underline{\$ 2,700,000}} \
\text { Year 4 } & \$ 150,000 & \$ 950,000 & \$ 1,100,000\
\end{array}$

Accepted Answer

The answer of During year 4, Josita, an NRA, receives...

Question 13

Match the definition with the correct term.
-A country with very low or no income tax.

Accepted Answer

A tax haven is a country or jurisdiction with very low or no income tax rates, making it attractive for individuals and businesses seeking to reduce their tax liabilities.

Question 14

Match the definition with the correct term.
-Individual who is not a U.S. citizen or resident.

Accepted Answer

A nonresident alien is the correct term for an individual who is not a U.S. citizen or resident. This term is used in tax contexts to refer to individuals who have not passed the green card test or the substantial presence test, and thus are not considered residents for tax purposes.

Question 15

Arendt, Inc., a U.S. corporation, purchases a piece of equipment for use in its manufacture of custom pianos. The equipment is acquired in Ireland at a cost of 200,000 euros when 1€: $1.25. Payment is due in 90 days. Arendt acquires 200,000 euros and pays for the machine when 1€: $1.15. What is the basis of the asset to Arendt and what is the foreign currency exchange gain or loss, if any?

Accepted Answer

The answer of Arendt, Inc., a U.S. corporation, purchases a...

Question 16

Match the definition with the correct term.
-Income of foreign person taxed through filing of a U.S. tax return with deductions allowed against gross income.

Accepted Answer

Effectively connected income (ECI) refers to the income of a foreign person that is connected with the conduct of a trade or business in the United States. Such income is taxed on a net basis, meaning deductions are allowed against gross income, through the filing of a U.S. tax return.

Question 17

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

Accepted Answer

A U.S. shareholder is defined as a U.S. person who owns, directly or indirectly, 10% or more of the total combined voting power of all classes of stock of a foreign corporation. This definition is crucial in determining whether a foreign corporation is a controlled foreign corporation (CFC), as the ownership percentage of U.S. shareholders is a key factor.

Question 18

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once.
-Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

Accepted Answer

A controlled foreign corporation (CFC) is defined as a foreign corporation where more than 50% of the total combined voting power or value is owned by U.S. shareholders.

Question 19

Match the definition with the correct term.
-Treasury powers over transfer pricing.

Accepted Answer

Section 482 of the Internal Revenue Code grants the U.S. Treasury the authority to adjust income, deductions, credits, or allowances between related entities to prevent evasion of taxes or to clearly reflect income. This is directly related to transfer pricing, which involves the pricing of goods, services, and intangible property between related entities.

Question 20

Match the definition with the correct term.
-A business operation that accounts for profits and losses using its functional currency.

Accepted Answer

A Qualified Business Unit (QBU) is a separate and clearly identified unit of a trade or business that maintains separate books and records. It is relevant in accounting for profits and losses in the functional currency, which is the currency of the primary economic environment in which the business operates.

Quiz 25: Taxation of International Transactions

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Upon repatriation to a CFC, it does not create dividend income.

Match the definition with the correct term. -A non-U.S. citizen who holds a "green card."

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A CFC's profits from sales of goods and services.

Match the definition with the correct term. -Method for sourcing income and deductions.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Portfolio income treated as Subpart F income.

Match the definition with the correct term. -Activity that creates the potential for effectively connected income.

Match the definition with the correct term. -Foreign taxpayers earning income inside the United States.

Given the following information, determine whether FanCo, a foreign corporation, is a CFC. Shareholders of Voting Foreign Corporation Power Classification Murray 24% U.S. person Nancy 20% U.S. person Otto 40% Foreign person Patricia 16% U.S. person Patricia is Murray's daughter.

Match the definition with the correct term. -An individual who gives up U.S. citizenship to avoid U.S. income taxes.

Match the definition with the correct term. -A country with very low or no income tax.

Match the definition with the correct term. -Individual who is not a U.S. citizen or resident.

Match the definition with the correct term. -Income of foreign person taxed through filing of a U.S. tax return with deductions allowed against gross income.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

Match the definition with the correct term. -Treasury powers over transfer pricing.

Match the definition with the correct term. -A business operation that accounts for profits and losses using its functional currency.