Question 1

The physical presence test method of qualifying for the foreign-earned income exclusion requires the
A)presence in one foreign country for at least 330 full days during a 12-month period.
B)presence in one or more foreign countries for at least 330 full days during a single tax year.
C)presence in one or more foreign countries for at least 330 full days during a 12-month period.
D)presence in one or more foreign countries for at least 330 consecutive full days during a 12-month period.

Accepted Answer

The physical presence test method requires the taxpayer to have a presence in one or more foreign countries for at least 330 full days during a 12-month period. The presence does not have to be continuous or consecutive, but it must add up to at least 330 full days. Choice A is incorrect because the presence does not have to be in one foreign country only. Choice B is incorrect because the requirement is for a 12-month period, not a single tax year. Choice D is incorrect because the presence does not have to be consecutive.

Question 2

Karen, a U.S. citizen, earns $40,000 of taxable income from U.S. sources, $20,000 in taxable wages from Country A and $20,000 in taxable interest from Country B. The U.S. tax rate is 21%. The tax on Country A income is $8,000, and Country B charges no tax on the interest income. Assuming only a single basket is required, Karen's foreign tax credit that can be claimed is
A)$5,000.
B)$8,000.
C)$10,000.
D)none of the above.

Accepted Answer

The foreign tax credit is calculated by taking the lesser of the foreign tax paid or the U.S. tax that would have been due on that income and applying it as a credit towards the U.S. tax liability. In this case, Karen's U.S. tax liability on $40,000 of taxable income is $8,400 (21% of $40,000). Since the tax on Country A income is $8,000, that is the lesser of the two amounts and can be claimed as a foreign tax credit. The tax on Country B income is not relevant since there was no tax paid to that country. Therefore, Karen's foreign tax credit is $8,000.

Question 3

Income is "effectively connected" with the conduct of a U.S. business only if
A)the asset-use test is met.
B)the business activities test is met.
C)activities of the U.S. business are a material factor in the realization of the income.
D)Either A, B, or C can be correct.

Accepted Answer

Income is considered "effectively connected" with the conduct of a U.S. business if it meets any of the following criteria: the asset-use test, the business activities test, or if the activities of the U.S. business are a material factor in the realization of the income.

Question 4

Identify which of the following statements is false.
A)Earned income is excludable from gross income only if it is foreign-source income.
B)Taxable pensions and annuities are excluded from the definition of earned income when computing the foreign-earned income exclusion.
C)An individual meets the bona fide resident test by establishing a home in a foreign country for 330 days.
D)All of the above are false.

Accepted Answer

The bona fide resident test requires an individual to be a resident of a foreign country for an entire tax year, not just 330 days. The 330-day requirement is part of the physical presence test, not the bona fide resident test.

Question 5

Marcella, an alien individual, is present in the United States for 122 days this year and 122 days each in the past two years. Does she satisfy both the 31-day and 183-day requirements for U.S. Residency status?

Accepted Answer

The answer of Marcella, an alien individual, is present in...

Question 6

U.S. citizen who has a calendar tax year establishes a tax home and residence in a foreign country and qualifies for the foreign-earned income exclusion for 60 days in 2018; 365 days in 2019; and 60 days in 2020. The maximum earned income exclusion for 2020 rounded to the nearest whole number is?
A)$17,733
B)$17,639
C)$16,151
D)none of the above

Accepted Answer

To qualify for the foreign-earned income exclusion, a taxpayer must have a tax home in a foreign country and meet either the bona fide residence test or the physical presence test. In this case, the taxpayer meets the physical presence test as they were present in a foreign country for at least 330 full days in a 12-month period. 
For tax year 2020, the maximum foreign-earned income exclusion is $107,600. However, since the taxpayer only qualifies for the exclusion for 60 days in 2020, the maximum exclusion amount is prorated based on the number of days present in the foreign country. 
The prorated exclusion amount for 2020 is calculated as follows: 
($107,600 / 366) x 60 = $17,638.80 
Rounding this amount to the nearest whole number results in a maximum earned income exclusion of $17,639. Therefore, the correct answer is B.

Question 7

Pedro, a nonresident alien, licenses a patent to a U.S. company for an $11 per unit fee for each unit produced. As a result of receiving the fee, Pedro must recognize the fee as
A)ordinary income taxable in the United States.
B)capital gain taxable in the United States.
C)no gain or income taxed in the United States.
D)a portion of the gain, depending on the number of days Pedro is physically present in the United States during the current year.

Accepted Answer

The licensing fee received by Pedro is considered ordinary income and is subject to U.S. income tax as he is a nonresident alien receiving income from sources within the United States.

Question 8

Identify which of the following statements is false.
A)The foreign-earned income exclusion is $104,100 in 2020.
B)The primary purpose for the foreign-earned income exclusion is to prevent double taxation of income.
C)A taxpayer who is physically present in a foreign country for 330 full days out of a 12-month period satisfies the bona fide foreign resident test.
D)All of the above are false.

Accepted Answer

The statement in C is false because it describes the physical presence test, not the bona fide residence test. The bona fide residence test requires a taxpayer to be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year, not just 330 full days out of a 12-month period.

Question 9

Nonresident aliens are not allowed to claim the standard deduction.

Accepted Answer

Nonresident aliens are only allowed to claim itemized deductions, not the standard deduction.

Question 10

Darlene, a U.S. citizen, has foreign-earned income of $150,000 and incurs $33,750 of foreign-earned income taxes. How much of Darlene's foreign income taxes are noncreditable?

Accepted Answer

The answer of Darlene, a U.S. citizen, has foreign-earned income...

Question 11

In January of the current year, Stan Signowski's U.S. employer assigned him to their Paris office. This year, he earned salary, a cost-of-living allowance, a housing allowance, a home leave allowance that permits him to return home once each year, and an education allowance to pay for U.S. schooling for his son. Stan and his wife, Jennifer, have rented an apartment in Paris and paid French income taxes. What tax issues does Stan need to consider when preparing his tax return?

Accepted Answer

The answer of In January of the current year, Stan...

Question 12

Identify which of the following statements is true.
A)An individual who is physically present in a foreign country for 330 full days out of a 12-month period can claim the foreign-earned income exclusion only for the days in the 12-month period he/she is physically present in a foreign country.
B)An individual, who is a bona fide resident of a foreign country for at least one full tax year, can claim the foreign-earned income exclusion for all days on which he/she is a resident of the foreign country and physically present in that country.
C)Fringe benefits that are excluded from gross income under a Code Section other than Sec. 911 reduce the annual dollar ceiling for the foreign income exclusion.
D)All of the above are false.

Accepted Answer

The answer of Identify which of the following statements is...

Question 13

A nonresident alien earns $10,000 of dividends from a domestic corporation, which is the alien's only U.S. source income. Which one of the following statements is incorrect?
A)The nonresident alien's U.S. tax rate is 30% unless reduced by a tax treaty.
B)The domestic corporation must withhold the U.S. taxes from the alien's dividend payment.
C)The 30% tax rate is applied against gross income.
D)The nonresident alien must pay estimated taxes on the dividend income at a 30% rate.

Accepted Answer

The statement "The nonresident alien must pay estimated taxes on the dividend income at a 30% rate" is incorrect. Nonresident aliens are not required to make estimated tax payments on their U.S. source income. Rather, the withholding of taxes at the source, such as from the dividend payment, is considered sufficient to cover the alien's U.S. tax liability.

Question 14

U.S. citizen Barry is a bona fide resident of a foreign country for all of 2020. Barry uses a calendar year as his tax year and receives $158,000 in salary and allowances from his employer. Included in the $158,000 is a $25,000 housing allowance. Barry's housing costs are $30,000. The base housing amount for the current year is $17,216. What amount related to his housing can Barry exclude on his Form 2555?
A)$12,784
B)$25,000
C)$30,000
D)$14,545

Accepted Answer

To calculate the housing exclusion amount, we first need to determine Barry's excess housing costs. Excess housing costs are the total housing costs less the base housing amount.

Excess housing costs = $30,000 - $17,216 = $12,784

Since Barry's employer provided him with a $25,000 housing allowance, we need to compare this to his excess housing costs. The maximum exclusion amount is the lowest of the actual housing expenses, the housing allowance provided by the employer, or the excess housing costs.

Therefore, Barry's housing exclusion amount is $12,784, which is less than the $25,000 housing allowance he received. So, he can exclude $12,784 related to his housing on his Form 2555.

Question 15

Identify which of the following statements is true.
A)If a foreign national has a closer connection with his home country, the individual is taxed as a resident alien.
B)To obtain resident status, an alien must meet both the lawful permanent resident test and the substantial presence test.
C)An individual who is a resident alien of the United States is taxed on his or her worldwide income at the same tax rates that would apply to a U.S. citizen.
D)All of the above are false.

Accepted Answer

This statement is true. If an individual qualifies as a resident alien of the United States, he or she is subject to U.S. tax on worldwide income at the same tax rates as U.S. citizens. A is incorrect because having a closer connection with one's home country does not determine one's tax status in the U.S. B is incorrect because there are other ways to obtain resident status (such as through the green card lottery or employment sponsorship) that do not require meeting the substantial presence test. D is incorrect because statement C is true.

Question 16

Perry, a U.S. citizen, is transferred by his employer to Japan for a three-year assignment. Which one of the following items is not excluded under Sec. 911?
A)base salary
B)cost-of-living allowance
C)housing costs
D)premiums paid on first $50,000 of group term life insurance

Accepted Answer

Premiums paid on first $50,000 of group term life insurance are not excluded under Sec. 911, while base salary, cost-of-living allowance, and housing costs are all potentially excluded under the foreign earned income exclusion.

Question 17

Identify which of the following statements is true.
A)Capital gains earned in the United States, other than in the conduct of a U.S. trade or business, are taxed to a nonresident alien only if the alien is physically present in the United States for at least 183 days during the tax year.
B)Aliens, who are U.S. residents, are taxed only on their U.S. income.
C)A nonresident alien from a nontreaty country is taxed at a 35% rate on U.S. source investment income without the benefit of any deductions.
D)All of the above are true.

Accepted Answer

A) Nonresident aliens are subject to U.S. tax on capital gains if they are physically present in the U.S. for at least 183 days during the tax year, but this rule does not apply to gains related to the conduct of a U.S. trade or business. B) is incorrect because U.S. residents, including resident aliens, are taxed on their worldwide income, not just U.S. income. C) is incorrect because the tax rate and the ability to take deductions for a nonresident alien can vary based on the type of U.S. income and any applicable tax treaties.

Question 18

U.S. citizen Patrick is a bona fide resident of a foreign country for all of the current year. Patrick uses a calendar year as his tax year. He has $100,000 of self-employment income and incurs $20,000 in housing expenses. The base housing cost amount is $17,216. The deduction for housing expenses is
A)$16,624 for AGI.
B)$16,624 from AGI.
C)$2,784 for AGI.
D)$6,816 from AGI.

Accepted Answer

The housing deduction is the excess of actual housing expenses over the base housing amount. Here, $20,000 - $17,216 = $2,784, which is deductible for AGI.

Question 19

Jose, a U.S. citizen, has taxable income from U.S. sources of $15,000 and taxable income from a foreign country of $35,000. Assume the U.S. tax rate is 25% and Jose paid $12,000 in taxes to the foreign country. What foreign tax credit can be claimed by Jose?

Accepted Answer

The answer of Jose, a U.S. citizen, has taxable income...

Question 20

A U.S. citizen, who uses a calendar year as his tax year, is transferred to a foreign country by his employer. The U.S. citizen arrived in the foreign country on November 3 of last year. Residency is expected to be maintained in the foreign country until August 4 of next year. None of the years are a leap year. The first year for which an earned income exclusion can be claimed is
A)last year.
B)the current year.
C)next year.
D)The earned income exclusion cannot be claimed.

Accepted Answer

The answer of A U.S. citizen, who uses a calendar...

Quiz 16: Us Taxation of Foreign-Related Transactions

The physical presence test method of qualifying for the foreign-earned income exclusion requires the

Income is "effectively connected" with the conduct of a U.S. business only if

Identify which of the following statements is false.

Marcella, an alien individual, is present in the United States for 122 days this year and 122 days each in the past two years. Does she satisfy both the 31-day and 183-day requirements for U.S. Residency status?

U.S. citizen who has a calendar tax year establishes a tax home and residence in a foreign country and qualifies for the foreign-earned income exclusion for 60 days in 2018; 365 days in 2019; and 60 days in 2020. The maximum earned income exclusion for 2020 rounded to the nearest whole number is?

Pedro, a nonresident alien, licenses a patent to a U.S. company for an $11 per unit fee for each unit produced. As a result of receiving the fee, Pedro must recognize the fee as

Identify which of the following statements is false.

Nonresident aliens are not allowed to claim the standard deduction.

Darlene, a U.S. citizen, has foreign-earned income of $150,000 and incurs $33,750 of foreign-earned income taxes. How much of Darlene's foreign income taxes are noncreditable?

Identify which of the following statements is true.

A nonresident alien earns $10,000 of dividends from a domestic corporation, which is the alien's only U.S. source income. Which one of the following statements is incorrect?

Identify which of the following statements is true.

Perry, a U.S. citizen, is transferred by his employer to Japan for a three-year assignment. Which one of the following items is not excluded under Sec. 911?

Identify which of the following statements is true.

Jose, a U.S. citizen, has taxable income from U.S. sources of $15,000 and taxable income from a foreign country of $35,000. Assume the U.S. tax rate is 25% and Jose paid $12,000 in taxes to the foreign country. What foreign tax credit can be claimed by Jose?