Question 1

Section 482 of the Internal Revenue Code gives the IRS the authority to apportion or allocate gross income,deductions,or credits between/among related parties to correct any perceived distortion resulting from unrealistic prices charged by members of the group to each other for goods or services.

Accepted Answer

Section 482 of the Internal Revenue Code does give the IRS the authority to apportion or allocate gross income, deductions, or credits between or among related parties to correct any perceived distortion resulting from unrealistic prices charged by members of the group to each other for goods or services.

Question 2

A controlled foreign corporation is a foreign corporation in which U.S.shareholders own more than 50% of the voting power or stock value.

Accepted Answer

This is the definition of a controlled foreign corporation (CFC) as per the rules set by the U.S. Internal Revenue Service.

Question 3

Which of the following could result in a corporation having more than 100% of its income subject to state taxation?

Accepted Answer

All of the factors listed could result in a corporation having more than 100% of its income subject to state taxation. This is because different states have different rules and formulas for calculating state taxes, and in some cases, these rules may result in double taxation or other distortions that can cause a corporation's income to be subject to more than 100% in state taxes. Therefore, a corporation that does business in multiple states needs to be careful to comply with all applicable state tax laws and regulations to avoid such problems.

Question 4

Which of the following statements concerning the nexus required for a state to tax income is false?

Accepted Answer

The answer of Which of the following statements concerning the...

Question 5

GAAP-based consolidated financial statements include only income earned by the consolidated group's domestic subsidiaries.

Accepted Answer

GAAP-based consolidated financial statements include income earned by all subsidiaries, both domestic and foreign, that are included in the consolidation.

Question 6

Lexington Corporation conducts business in four states.In state A,its sales factor is 50%,its payroll factor is 14%,and its property factor is 29%.State A uses an equally-weighted three-factor apportionment formula,but plans to change to a formula that double-weight the sales factor.Which is of the following statements is true?

Accepted Answer

With the double-weighted sales factor formula, Lexington's tax liability to state A will increase because the sales factor carries more weight in the formula. The increase in tax liability cannot be offset by a decline in tax liability to other states because only state A's formula is changing. Therefore, option A is the correct answer.

Question 7

Korn,Co.was incorporated in Delaware.It has production,distribution,and sales facilities in Kansas and Nebraska.All of Korn's customers reside in Kansas or Nebraska.Assume that both states use the UDITPA formula for apportionment of income.The corporation is investing in new equipment that cost $900,000.The equipment could be used in either the Kansas or Nebraska production facilities.Assume that Kansas' corporate income tax rate is 7% and Nebraska's is 8.5%.Should the equipment be placed in Kansas or Nebraska to minimize Korn's state income tax?

Accepted Answer

Placing the equipment in Kansas would minimize Korn's state income tax due to Kansas' lower corporate income tax rate of 7% compared to Nebraska's 8.5%. The Uniform Division of Income for Tax Purposes Act (UDITPA) apportions income based on factors such as property, payroll, and sales. The location of the new equipment would affect the property factor, potentially altering the apportionment of income to states with different tax rates.

Question 8

This year,Sutton Corporation's before-tax income was $2,000,000.It paid $175,000 income tax to Nebraska and $300,000 income tax to Iowa.Compute Sutton's federal income tax.

Accepted Answer

Federal income tax = Before-tax income - State income taxes= $2,000,000 - $175,000 - $300,000= $1,525,000Federal income tax = $1,525,000 x 34%= $518,500

Question 9

The term "tax haven" refers to a foreign country that imposes an income tax at a rate higher than the U.S.rate.

Accepted Answer

The term "tax haven" refers to a foreign country that offers favorable tax treatment and/or confidentiality to individuals and businesses seeking to minimize their tax liability. This may include lower tax rates than the U.S. or no tax on certain types of income or transactions.

Question 10

Tri-State's,Inc.operates in Arkansas,Oklahoma,and Kansas.Assume that each state has adopted the UDITPA formula.During the corporation's tax year ended December 31,the apportionment data indicated:   Tri-State's income for the current year is $250,000.Approximately how much will be taxed by Kansas?

Accepted Answer

The answer of Tri-State's,Inc.operates in Arkansas,Oklahoma,and Kansas.Assume that each state...

Question 11

Harris Corporation's before-tax income was $400,000.It does business entirely in Pennsylvania,which has a 6% corporate income tax.Compute Harris' federal income tax.

Accepted Answer

The answer of Harris Corporation's before-tax income was $400,000.It does...

Question 12

Which of the following statements about the Uniform Division of Income for Tax Purposes Act (UDITPA)is false?

Accepted Answer

UDITPA does not require all states to use the same method for apportioning income of multistate businesses. Rather, it provides a framework for states to use in developing their own apportionment formulas.

Question 13

Verdi Inc.has before-tax income of $500,000.Verdi operates entirely in state Q,which has a 10% corporate income tax.Compute Verdi's combined federal and state tax burden as a percentage of its before-tax income.

Accepted Answer

The answer of Verdi Inc.has before-tax income of $500,000.Verdi operates...

Question 14

A foreign source dividend received by a U.S.corporation is eligible for the 70% dividends-received deduction.

Accepted Answer

The 70% dividends-received deduction is generally available for dividends received from domestic corporations, not foreign corporations.

Question 15

Economic nexus:

Accepted Answer

Economic nexus can exist for a business that has no physical presence in a state but meets certain sales thresholds or other criteria set by the state. This concept has been established through state laws and court rulings and has been upheld by the U.S. Supreme Court in South Dakota v. Wayfair, Inc. (2018). The other options presented are incorrect: B) Economic nexus does create taxing jurisdiction under the Commerce Clause; C) Economic nexus involves less physical presence than traditional definitions of nexus; and D) Economic nexus applies to all business activities, not just those conducted over the internet.

Question 16

Tri-State's,Inc.operates in Arkansas,Oklahoma,and Kansas.Assume that each state has adopted the UDITPA formula.During the corporation's tax year ended December 31,the apportionment data indicated:   Tri-State's income for the current year is $250,000.Approximately how much income will be taxed by Oklahoma?

Accepted Answer

To calculate the portion of Tri-State's income that will be taxed by Oklahoma, we need to use the UDITPA formula, which takes into account the sales, property, and payroll factors in each state.

Using the given apportionment data, we can calculate Tri-State's sales factor in Oklahoma as follows:

Oklahoma Sales = ($500,000 x 30%) + ($200,000 x 60%) + ($0 x 10%) = $150,000 + $120,000 = $270,000

Next, we need to calculate Tri-State's total sales factor in all three states:

Total Sales = $500,000 + $200,000 + $0 = $700,000

Now we can calculate the portion of Tri-State's income that will be taxed by Oklahoma:

Oklahoma Taxable Income = $250,000 x ($270,000 / $700,000) = $96,428.57

Therefore, the best choice is D) $173,750, which is the amount of Tri-State's income that will not be taxed by Oklahoma. Subtracting this amount from Tri-State's total income of $250,000 gives us the answer of $76,571.43, which is approximately how much income will be taxed by Oklahoma.

Question 17

Transfer prices cannot be used by U.S.corporations and their foreign affiliates to shift income between taxing jurisdictions.

Accepted Answer

Transfer prices can be used by U.S. corporations and their foreign affiliates to shift income between taxing jurisdictions, which is known as transfer pricing. However, there are regulations and guidelines in place to prevent it from being abused for tax avoidance purposes.

Question 18

A U.S.parent corporation that receives a dividend from a wholly-owned foreign subsidiary that pays a 45% income tax to its home country does not owe any U.S.tax on the dividend.

Accepted Answer

The dividend received deduction allows a U.S. parent corporation to exclude from its taxable income dividends received from a wholly-owned foreign subsidiary.

Question 19

Tri-State's,Inc.operates in Arkansas,Oklahoma,and Kansas.Assume that each state has adopted the UDITPA formula.During the corporation's tax year ended December 31,the apportionment data indicated:   Which of the following statements is true?

Accepted Answer

According to the given apportionment data, the sales factor for Arkansas is (1,100,000 / 3,100,000) x 100 = 35.48%, the payroll percentage for Arkansas is (200,000 / 1,800,000) x 100 = 11.11%, and the property factor for Arkansas is (50,000 / 700,000) x 100 = 7.14%. Therefore, all the factors for Arkansas are correct.

Question 20

Which of the following activities create state income tax nexus?

Accepted Answer

The answer of Which of the following activities create state...

Quiz 13: Jurisdictional Issues in Business Taxation