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.
-Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

Accepted Answer

The answer of Match the definition with the correct term....

Question 2

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 income earned by a foreign person that is connected with the conduct of a trade or business within the United States. Such income is subject to U.S. tax, and the foreign person must file a U.S. tax return to report this income, with deductions allowed against the gross income to determine the taxable amount.

Question 3

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 a person who gives up their citizenship to avoid U.S. income taxes.

Answer: C 
 A nonresident alien is an individual who is neither a U.S. citizen nor a U.S. resident alien.

Answer: D 
 A U.S. trade or business includes any business or trade conducted within the United States by a nonresident alien.

Answer: E 
 Effectively connected income is income earned from a U.S. trade or business by a nonresident alien.

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 non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

Accepted Answer

The term "controlled foreign corporation" matches the definition provided.

Question 5

Given the following information, determine whether FanCo, a foreign corporation, is a CFC.
$$\begin{array}{l}
\begin{array} { l c l } 
\text { Shareholders of } & \text { Voting } & \
\text { Foreign Corporation } & \text { Power } & \text { Classification } \
\text { Murray } & 24 \% & \text { U.S. person } \
\text { Nancy } & 20 \% & \text { U.S. person } \
\text { Otto } & 40 \% & \text { Foreign person } \
\text { Patricia } & 16 \% & \text { U.S. person }
\end{array}\
\text { Patricia is Murray's daughter. }
\end{array}$$

Accepted Answer

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

Question 6

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 business operation that accounts for profits and losses using its functional currency, and is allowed to report its financial results in such a manner for tax purposes.

Note: The other options are not related to the definition provided.

Question 7

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?
$\begin{array}{lrcc}&\text { U.S.-source } & \text { Active Foreign } & \text { Total Gross } \
\text { Year } & \text { Income } & \text { Business Income } & \text { income } \
\text { Year 1 } & \$ 200,000 & \$ 500,000 & \$ 700,000 \
\text { Year 2 } & 50,000 & 950,000 & 1,000,000 \
\text { Year 3 } & \underline{100,000} & 900,000 & 1,000,000\\text { Totals }& \$ 350,000&\$ 2,350,000 & \$ 2,700,000\\text { Year } 4 & \$ 150,000 & \$ 950,000 & \$ 1,100,000
\end{array}$

Accepted Answer

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

Question 8

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

The answer of Match the definition with the correct term....

Question 9

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

Accepted Answer

Allocation and apportionment is the method used to distribute income and deductions among different jurisdictions for tax purposes. This is typically done when a business operates in multiple states or countries and needs to determine how much income is taxable in each location.

The other terms are as follows:
A) Inbound - refers to foreign individuals or entities who earn income within the United States.
B) Outbound - refers to U.S. individuals or entities who earn income outside of the United States.
D) Qualified business unit - refers to a separate unit within a larger company that operates in a foreign country and is treated as a separate entity for tax purposes.
E) Tax haven - refers to a country or jurisdiction with a low or no tax rate that is used by individuals or businesses to minimize their tax liability.
F) Income tax treaty - an agreement between two or more countries that typically addresses the taxation of income earned by residents of those countries.
G) Section 482 - a provision in the tax code that allows the IRS to allocate income, deductions, credits, or allowances between related entities to ensure that the transactions reflect the fair market value.

Question 10

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 11

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

Accepted Answer

A non-U.S. citizen who holds a "green card" is considered a resident for U.S. tax purposes.

Answer: C
 Nonresident alien refers to a person who does not meet the U.S. tax definition of a resident and is not a U.S. citizen.

Answer: A
 An expatriate is someone who renounces their citizenship or moves to another country, often for work or personal reasons.

Answer: D
 U.S. trade or business refers to a business or trade that is conducted within the United States, and is subject to U.S. tax laws.

Answer: E
 Effectively connected income refers to income that is related to U.S. trade or business activities and is subject to U.S. tax.

Question 12

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 income that has already been taxed at the shareholder level when earned by a Controlled Foreign Corporation (CFC). Upon repatriation or distribution of this income to a U.S. shareholder, it does not create dividend income again because it has already been subjected to U.S. tax in the year it was earned by the CFC.

Question 13

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

Accepted Answer

"Inbound" refers to foreign taxpayers earning income inside the United States.

Answer: E 
 "Tax haven" refers to a country or jurisdiction with low tax rates and lax financial regulation, often used for tax avoidance purposes.

Answer: F 
 "Income tax treaty" refers to an agreement between two countries that sets out the tax treatment of individuals or businesses that earn income in both countries.

Answer: G 
 "Section 482" refers to a provision of the Internal Revenue Code that allows the IRS to adjust the pricing of transactions between related parties in order to prevent tax evasion.

The terms "Allocation and apportionment" and "Qualified business unit" do not match the given definition.

Question 14

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 15

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

Accepted Answer

A nonresident alien is an individual who is not a U.S. citizen or resident.

Note: The other terms listed are not the correct match for the given definition. Expatriate refers to a person who voluntarily lives outside their native country or homeland. Resident refers to a person who has established legal residence in a particular place. U.S. trade or business refers to any trade or business, whether conducted by a U.S. or foreign person, that has income effectively connected with the conduct of a trade or business within the U.S. Effectively connected income refers to income that is generated from a U.S. trade or business and subject to U.S. income tax.

Question 16

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

Accepted Answer

Treasury powers over transfer pricing refers to Section 482 of the Internal Revenue Code, which allows the Department of Treasury to adjust allocations of income, deductions, and credits between commonly controlled taxpayer entities to ensure they reflect a fair market value.

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.
-A CFC's profits from sales of goods and services.

Accepted Answer

Foreign base company income refers to a CFC's profits from sales of goods and services.

Answer: C
 Controlled foreign corporation refers to a foreign corporation in which more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned by U.S. shareholders.

Answer: D
 U.S. shareholder refers to a U.S. person who owns 10 percent or more of the total combined voting power of a foreign corporation.

Answer: E
 Previously taxed income refers to earnings of a CFC that have already been subject to U.S. tax through inclusion in the income of a U.S. shareholder.

Answer: B, F, G, H
 There is no match for foreign personal holding company income, more than 10 percent, more than 80 percent, and more than 50 percent.

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.
-Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

Accepted Answer

The term "U.S. shareholder" refers to an owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

Question 19

Goolsbee, Inc., a U.S. corporation, generates U.S.-source and foreign-source gross income. Goolsbee's assets tax basis) are as follows.
$$\begin{array} { l r } 
\text { Generating U.S.-source income } & \$ 15,000,000 \
\text { Generating foreign-source income } & \underline { 25,000,000 } \
\text { Total } & \$ 40,000,000 \
\hline
\end{array}$$
 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 20

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 that has very low or no income tax, making it an attractive location for individuals and businesses to move their money to avoid paying taxes in their home country.

Quiz 9: 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. -Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

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. -An individual who gives up U.S. citizenship to avoid U.S. income taxes.

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. -A business operation that accounts for profits and losses using its functional currency.

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. -Method for sourcing income and deductions.

Match the definition with the correct term. -Activity that creates the potential for effectively connected 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. -Upon repatriation to a CFC, it does not create dividend income.

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

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

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

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. 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. -A country with very low or no income tax.