Question 1

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 accurately describes the U.S. system for taxing income earned by non-U.S. persons within U.S. borders. The term "inbound taxation" is commonly used to refer to this type of taxation.

Question 2

U.S.income tax treaties:

Accepted Answer

U.S. income tax treaties provide rules by which multinational taxpayers avoid double taxation, which occurs when the same income is taxed by two different countries. These treaties establish procedures for determining which country has the primary right to tax specific types of income and provide relief from double taxation by allowing taxpayers to claim credits or deductions for taxes paid in the other country.

Question 3

An advance pricing agreement (APA) is used between:

Accepted Answer

An advance pricing agreement (APA) is an agreement made between the taxpayer and the Internal Revenue Service (IRS) for the determination of transfer pricing for a certain period of time. Therefore, the correct choice is C, the taxpayer and the IRS.

Question 4

Chang, an NRA, is employed by Fisher, Inc., a foreign corporation.In November, Chang spends 12 days in the United States performing consulting services for Fisher's U.S.branch.She earns $5,000 per month.A month includes 20 workdays.

Accepted Answer

Chang has U.S.-source income under the foreign employer exception, which states that income earned by a foreign person while in the U.S. performing services for a foreign employer is generally considered U.S.-source income. Since Fisher has a U.S. branch, Chang's income is considered U.S.-source. However, Chang may be able to claim a deduction or exemption under the applicable tax treaty between the U.S. and her home country.

Question 5

Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign employer.She spends 50 days in the United States and earns $15,000 for a two-month period.This amount is attributable to 40 U.S.working days and 10 foreign working days.Her employer does not have a U.S.trade or business and Liang spends no other time in the U.S.for the tax year.Liang's U.S.-source taxable income is:

Accepted Answer

Liang's U.S.-source taxable income is based on the number of U.S. working days, which is 40. Therefore, her U.S.-source taxable income is 40/50*15,000 = $12,000. She did not spend enough time in the U.S. to trigger U.S. tax on her foreign-earned income for the days worked outside the U.S. (10 days out of 50). Therefore, the correct answer is C, $12,000.

Question 6

Which of the following statements best describes the purpose of § 482, under which the Treasury can reallocate income and deductions among related taxpayers?

Accepted Answer

Section 482 is primarily designed to ensure that related entities in different tax jurisdictions are taxed on an arm's length basis, meaning a controlled entity should be taxed as if it were an uncontrolled entity. This ensures that income and deductions are not artificially shifted among related entities to avoid taxes. The section provides guidance on how related entities should set transfer prices for transactions between them. Thus, option D is the best choice as it talks about placing a controlled entity on a tax parity with an uncontrolled entity with regard to prices charged by the entities. The other options are inaccurate or incomplete in their descriptions of the purpose of § 482.

Question 7

Dividends received from a domestic corporation are totally U.S.source:

Accepted Answer

The answer of Dividends received from a domestic corporation are...

Question 8

Without the foreign tax credit, double taxation would result when:

Accepted Answer

Double taxation would occur in this scenario because both the United States and the foreign country have the right to tax the income of the U.S. resident. The foreign tax credit allows the U.S. resident to offset the foreign tax paid against their U.S. tax liability, thereby avoiding double taxation. Options A, B, and D do not necessarily result in double taxation, as there may be provisions such as tax treaties or exemptions that prevent double taxation in those cases.

Question 9

Wood, a U.S.corporation, owns Holz, a German corporation.Wood receives a dividend (non-Subpart F income) from Holz of 75,000€.The average exchange rate for the year is $1US: 0.6€, and the exchange rate on the date of the dividend distribution is $1US: 0.80€.Wood's exchange gain or loss is:

Accepted Answer

The answer of Wood, a U.S.corporation, owns Holz, a German...

Question 10

GreenCo, a domestic corporation, earns $25 million of taxable income from U.S.sources and $5 million of taxable income from foreign sources.What amount of taxable income does GreenCo report on its U.S.tax return?

Accepted Answer

The answer of GreenCo, a domestic corporation, earns $25 million...

Question 11

Qwan, a U.S.corporation, reports $250,000 interest expense for the tax year.None of the interest relates to nonrecourse debt or loans from affiliated corporations.Qwan's U.S.and foreign assets are reported as follows.  How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Accepted Answer

The answer of Qwan, a U.S.corporation, reports $250,000 interest expense...

Question 12

Which of the following statements is false in regard to the U.S.income tax treaty program?

Accepted Answer

The statement that the presence of a permanent establishment is not an important consideration in applying tax treaties is false. In fact, tax treaties often specify rules for determining whether a taxpayer has a permanent establishment in the other treaty partner's country, as this can affect the allocation of taxing rights between the two countries.

Question 13

Wood, a U.S.corporation owns 30% of Hout, a foreign corporation.The remaining 70% of Hout is owned by other foreign corporations not controlled by Wood.Hout's functional currency is the euro.Wood receives a 50,000€ distribution from Hout.If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1, the exchange rate at year end is .95€: $1, and on the date of the dividend payment the exchange rate is 1.1€: $1, what is Wood's tax result from the distribution?

Accepted Answer

The answer of Wood, a U.S.corporation owns 30% of Hout,...

Question 14

The U.S.system for taxing income earned outside its borders by U.S.persons is referred to as the territorial approach, because only income earned within the U.S.border is subject to taxation.

Accepted Answer

The statement is incorrect. The U.S. system for taxing income earned outside its borders by U.S. persons is referred to as the worldwide approach, because all income earned by U.S. persons, whether earned within or outside the U.S. border, is subject to taxation.

Question 15

ForCo, a foreign corporation, receives interest income of $100,000 from USCo, an unrelated domestic corporation.USCo has historically earned 85% of its income from foreign sources.What amount of ForCo's interest income is U.S.source?

Accepted Answer

The answer of ForCo, a foreign corporation, receives interest income...

Question 16

During the current year, USACo (a domestic corporation) sold equipment to FrenchCo, a foreign corporation, for $350,000, with title passing to the buyer in France.USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment, all of which were allocated to U.S.-source income.USACo's adjusted basis in the equipment is $20,000 on the date of sale.What is the source of the $330,000 gain on the sale of this equipment?

Accepted Answer

The gain on the sale of the equipment is $330,000 ($350,000 sale price - $20,000 adjusted basis). Of this amount, $80,000 is U.S.-source income, which represents the amount of depreciation deductions that were previously taken on the equipment and allocated to U.S.-source income. The remaining $250,000 is foreign source income, as the sale took place outside of the United States and the buyer is a foreign corporation. Therefore, the correct answer is C, as it reflects both sources of income.

Question 17

USCo, a domestic corporation, purchases inventory for resale from distributors within the U.S.and resells this inventory to customers outside the U.S., with title passing outside the U.S.What is the source of the USCo's inventory sales income?

Accepted Answer

Since the inventory is purchased from distributors within the U.S. but sold to customers outside the U.S. with title passing outside the U.S., the source of the inventory sales income is considered foreign source. Therefore, the best choice is D, 100% foreign source.

Question 18

Olaf, a citizen of Norway with no trade or business activities in the United States, sells at a gain 200 shares of MicroShift, Inc., a U.S.company.The sale takes place through Olaf's broker in Oslo.How is this gain treated for U.S.tax purposes?

Accepted Answer

Since Olaf has no trade or business activities in the U.S. and the sale took place through his broker in Oslo, the gain is considered foreign-source income and is therefore not subject to U.S. taxation.

Question 19

Flapp Corporation, a domestic corporation, conducts all of its transactions in the U.S.dollar.It sells inventory for $1 million to a Canadian company when the exchange rate is $1US: $1.2Can.The Canadian company pays for the inventory when the exchange rate is $1US: $1.25Can.What is Flapp's exchange gain or loss on this sale?

Accepted Answer

The answer of Flapp Corporation, a domestic corporation, conducts all...

Question 20

Section 482 is used by the Treasury to:

Accepted Answer

The answer of Section 482 is used by the Treasury...

Quiz 25: Taxation of International Transactions