Question 1

Roughly 5% of all taxes paid by businesses in the United States are to state, local, and municipal jurisdictions.

Accepted Answer

The percentage of taxes paid by businesses to state, local, and municipal jurisdictions in the United States is significantly higher than 5%. These taxes include property taxes, sales taxes, state income taxes, and other local taxes, which collectively make up a substantial portion of the tax burden on businesses.

Question 2

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

Based on the information given, Hendricks Corporation owns a portion of both Shane and Ferrell Corporation, and both of these corporations qualify as Controlled Foreign Corporations (CFCs).

Question 3

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 $840,000 (the 21% tax rate applies).Jaime's current-year FTC is $52,500.

Accepted Answer

Jaime's Foreign Tax Credit (FTC) would be limited to the amount of U.S. tax liability attributable to the foreign-source income, not exceeding the actual foreign taxes paid. If the foreign-source income is $250,000 and the U.S. tax rate is 21%, the maximum U.S. tax on the foreign income would be $52,500 (21% of $250,000). However, since the foreign taxes paid are $25,000, the FTC cannot exceed this amount. Therefore, Jaime's current-year FTC should be $25,000, not $52,500, assuming no other factors affect the calculation.

Question 4

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha.The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien.Julio recognizes foreign-source income from the sale because his home country is not the United States.

Accepted Answer

The source of income from the sale of real estate is determined by the location of the property, not the residence of the seller or the buyer. Since the property is located in Omaha, United States, Julio realizes U.S.-source income, not foreign-source income.

Question 5

Income tax treaties 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 provide for either higher...

Question 6

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

Accepted Answer

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

Question 7

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 and ForCo is a subsidiary incorporated in Belgium, it can sell the widgets to its subsidiary in Germany without any adverse tax consequences.

Question 8

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 the greater of the FTC limit or the actual foreign taxes paid or accrued.

Question 9

Nico lives in California.She was born in Peru but holds a green card.Nico is a nonresident alien (NRA).

Accepted Answer

Nico, holding a green card, is considered a lawful permanent resident of the United States, not a nonresident alien (NRA).

Question 10

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 11

Subpart F income includes portfolio income such as dividends and interest.

Accepted Answer

The answer of Subpart F income includes portfolio income such...

Question 12

The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

Accepted Answer

The statement is true.

Question 13

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 14

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 15

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 16

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 $94,500 before FTC.Waltz's FTC is $50,000.

Accepted Answer

Waltz's Foreign Tax Credit (FTC) is limited to the U.S. tax attributable to its foreign-source income to prevent double taxation. The FTC limit is calculated as (Foreign-source income / Worldwide income) * U.S. tax before FTC. Therefore, the limit is ($90,000 / $450,000) * $94,500 = $18,900. Since the actual foreign tax paid ($50,000) exceeds this limit, Waltz can only claim up to $18,900 as FTC, not the full $50,000.

Question 17

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

According to the CFC provisions, a U.S. shareholder is taxed on their proportionate share of the CFC's Subpart F income as a constructive dividend. In this case, Kipp owns 40% of the CFC and therefore is taxed on 40% of the $200,000 Subpart F income, which is $80,000.

Question 18

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, not involving U.S. property or primarily directed towards the U.S. market, which are typical criteria for Subpart F income classification.

Question 19

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

Accepted Answer

The IRS can indeed use § 482 reallocations to adjust transactions between related parties in order to ensure they are reflected properly on a tax return.

Question 20

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 both income and deductions. The source of the income or the deduction determines which rules apply. for example, if a deduction is related to income earned in a specific location or country, the deduction would also be sourced to that location or country.

Quiz 16: Multijurisdictional Taxation