Question 1

Which of the following transactions, if entered into by an NRA, is not subject to U.S.taxation?

Accepted Answer

The sale of stock of a foreign corporation whose only asset is a U.S. building is not subject to U.S. taxation because the foreign corporation is not considered a U.S. person for tax purposes. The sale of a commercial building located in Houston, Texas, and owned directly by the NRA, and the sale of stock of a domestic corporation whose only asset is undeveloped U.S. real estate are subject to U.S. taxation. The sale of a partnership interest that predominantly consists of U.S. real estate is also subject to U.S. taxation.

Question 2

Dark, Inc., a U.S.corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany.Dark reports $100,000 of taxable income from Dunkel on its U.S.tax return, along with $400,000 of taxable income from its U.S.operations.Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S.tax rate of 35%, what is Dark's U.S.tax liability after any allowable foreign tax credits?

Accepted Answer

Dark's taxable income before foreign tax credit is $500,000 ($400,000 from U.S. operations and $100,000 from Dunkel). Dark can claim a foreign tax credit for the $40,000 of foreign taxes paid on Dunkel's income, bringing its taxable income down to $460,000. Dark's U.S. tax liability on this amount at a rate of 35% is $161,000. Since Dark can take a foreign tax credit up to the amount of U.S. tax liability on the foreign source income (in this case, $40,000 of foreign tax paid = $40,000 of U.S. tax liability on the foreign source income), Dark's remaining U.S. tax liability is $121,000 ($161,000 - $40,000).

Question 3

Which of the following is not a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

Accepted Answer

Intangibles income is not a specific separate income "basket" for the foreign tax credit limitation calculation. The typical baskets are passive income and general income (which includes business income).

Question 4

Which of the following would not prevent an alien without a "green card" from being classified as a U.S.resident for income tax purposes?

Accepted Answer

The individual was in the United States to oversee her investments is not a qualifying exception for being classified as a U.S. resident for income tax purposes.

Question 5

Which of the following statements regarding the U.S.taxation of foreign persons is true?

Accepted Answer

Under the Internal Revenue Code, a foreign person's effectively connected income is subject to U.S. income taxation. This includes income earned from a U.S. trade or business, such as wages, salaries, and profits from the sale of real property or other assets used in the business.

Question 6

A non-U.S.individual's "green card" remains in effect until:

Accepted Answer

According to U.S. immigration law, a green card remains in effect until it is either revoked or the individual abandons their lawful permanent residency status in the United States. This can happen if the individual voluntarily gives up their green card or if they fail to meet the requirements for maintaining permanent residency (such as not living in the U.S. for an extended period of time). Therefore, option D is the best choice. Options A and B are incorrect because discarding the card or leaving the country does not necessarily mean the individual has abandoned their permanent residency. Option C is also incorrect because while remaining outside the U.S. for two years may affect one's ability to re-enter the country, it does not automatically invalidate their green card status.

Question 7

Krebs, Inc., a U.S.corporation, operates an unincorporated branch manufacturing operation in the U.K.Krebs, Inc., reports $900,000 of taxable income from the U.K.branch on its U.S.tax return, along with $1,600,000 of taxable income from its U.S.operations.The U.K.branch income is all general limitation basket income.Krebs paid $270,000 in U.K.income taxes related to the $900,000 in branch income. Assuming a U.S.tax rate of 35%, what is Krebs' U.S.tax liability after any allowable foreign tax credits?

Accepted Answer

First, we need to calculate Krebs' U.S. tax liability on its overall taxable income, which is $1,600,000 + $900,000 = $2,500,000. Applying a U.S. tax rate of 35%, Krebs' U.S. tax liability is $875,000.

Next, we need to calculate Krebs' allowable foreign tax credit. The credit is limited to the lesser of the U.S. tax liability on the foreign source income (i.e. the $900,000) or the actual foreign taxes paid. In this case, the U.S. tax liability on the $900,000 is $315,000 (35% * $900,000), and Krebs paid $270,000 in U.K. income taxes. Therefore, the allowable foreign tax credit is $270,000.

Subtracting the allowable foreign tax credit from the U.S. tax liability gives us Krebs' final U.S. tax liability: $875,000 - $270,000 = $605,000. Therefore, the answer is (C) $605,000.

Question 8

Which of the following statements regarding the taxation of U.S.real property gains recognized by foreign persons not engaged in a U.S.trade or business is false? Gains from the disposition of U.S.real property are:

Accepted Answer

Option D is false. Real property gains recognized by foreign persons not engaged in a U.S. trade or business are subject to U.S. taxation, contrary to what option D suggests. Options A, B, and C are true.

Question 9

Kunst, a domestic corporation, generates $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket.Kunst's worldwide taxable income is $1,200,000, and its U.S.tax liability before FTC is $420,000.Foreign taxes attributable to the general income basket are $60,000 and to the passive income are $4,000.What is Kunst's foreign tax credit for the tax year?

Accepted Answer

The answer of Kunst, a domestic corporation, generates $100,000 of...

Question 10

Which of the following statements regarding the U.S.taxation of foreign persons is true?

Accepted Answer

Foreign persons are subject to a withholding tax on their U.S.-source portfolio income, including dividends, interest, and capital gains. This withholding tax is typically 30% but may be reduced or eliminated under certain tax treaties or other exceptions. Foreign persons may also be subject to U.S. income tax on their U.S.-source income from other sources besides U.S. real property, depending on the nature of the income and other factors.

Question 11

Waldo, Inc., a U.S.corporation, owns 100% of Orion, Ltd., a foreign corporation.Orion earns only general basket income.During the current year, Orion paid Waldo a $5,000 dividend. The foreign tax credit associated with this dividend is $3,000.The foreign jurisdiction requires a withholding tax of 10%, so Waldo received only $4,500 in cash as a result of the dividend.What is Waldo's total U.S.gross income reported as a result of the $4,500 cash received?

Accepted Answer

The answer of Waldo, Inc., a U.S.corporation, owns 100% of...

Question 12

Which of the following statements regarding foreign persons not engaged in a U.S.trade or business is true?

Accepted Answer

Foreign persons not engaged in a U.S. trade or business are generally subject to withholding taxes on the gross amount of U.S.-source investment income, such as dividends and interest.

Question 13

Jilt, a non-U.S.corporation, not resident in a treaty country, operates a U.S.branch that earns effectively connected E & P of $4 million for the tax year. The branch increases its investments in U.S.property (its U.S.net equity) by $1,600,000.The branch pays a U.S.corporate income tax of $2,153,846.Jilt's branch profits tax is:

Accepted Answer

The answer of Jilt, a non-U.S.corporation, not resident in a...

Question 14

Lang, an NRA who was not a resident of a treaty country, receives taxable dividends of $50,000 from U.S.corporations.Lang does not conduct a U.S.trade or business.Lang's dividends are taxed by the United States through withholding by the payor of:

Accepted Answer

Nonresident aliens (NRAs) who are not residents of a treaty country and do not conduct a U.S. trade or business are subject to a 30% withholding tax on U.S. source income such as dividends.

Question 15

ForCo, a foreign corporation not engaged in a U.S.trade or business, recognizes a $3 million gain from the sale of land located in the United States.The amount realized on the sale was $50 million.Absent any exceptions, what is the required withholding amount on the part of the purchaser of this land?

Accepted Answer

The required withholding amount on the part of the purchaser of the land is 10% of the amount realized on the sale, which is $50 million. Therefore, the correct withholding amount is $5 million (10% of $50 million). This is in accordance with FIRPTA (Foreign Investment in Real Property Tax Act) regulations.

Question 16

Fulton, Ltd., a foreign corporation, operates a U.S.branch that reports effectively connected U.S.earnings and profits (after income taxes) of $800,000 for the tax year.The branch's U.S.net equity at the beginning of the tax year is $2 million and at the end of the tax year is $1.5 million.Fulton is organized in a nontreaty country.Fulton's dividend equivalent amount for the year is:

Accepted Answer

The answer of Fulton, Ltd., a foreign corporation, operates a...

Question 17

The following income of a foreign corporation is not subject to the regular U.S.corporate income tax rates.

Accepted Answer

Net long-term capital gains of a foreign corporation, where no U.S. trade or business exists, are not subject to regular U.S. corporate income tax rates.

Question 18

A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

Accepted Answer

Generating "same basket" foreign-source income that is subject to a tax rate lower than the U.S. tax rate can help alleviate the problem of excess foreign taxes. This is because U.S. corporations can use the foreign tax credit to offset U.S. tax liability on foreign income, but the credit is limited to the amount of U.S. tax that would be paid on that income. If the foreign tax rate is higher than the U.S. tax rate, there may be excess foreign taxes that cannot be fully used as a credit. However, if the foreign income is subject to a tax rate lower than the U.S. tax rate, it may be possible to fully use the foreign tax credit and avoid excess foreign taxes.

Question 19

Shannon, a foreign person with a green card, spends the following days in the United States.  Shannon's residency status for 2014 is:

Accepted Answer

Shannon's green card grants her lawful permanent residency status in the United States, making her a U.S. resident for tax purposes even if she is not physically present in the country for a certain amount of time.

Question 20

Performance, Inc., a U.S.corporation, owns 100% of Krumb, Ltd., a foreign corporation.Krumb earns only general basket income.During the current year, Krumb paid Performance a $200,000 dividend.The foreign tax credit associated with this dividend is $30,000.The foreign jurisdiction requires a withholding tax of 30%, so Performance received only $140,000 in cash as a result of the dividend.What is Performance's total U.S.gross income reported as a result of the $140,000 cash received?

Accepted Answer

The $200,000 dividend received by Performance from Krumb is included in Performance's gross income. However, Performance is allowed to claim a foreign tax credit of $30,000 for the foreign withholding tax paid by Krumb. This means that Performance's taxable income from the dividend is $170,000 ($200,000 - $30,000). Since Performance only received $140,000 in cash, it must reduce its basis in Krumb to reflect the remaining $30,000 of income. Therefore, Performance's total U.S. gross income reported is $230,000 ($200,000 + $30,000 adjustment to basis).

Quiz 25: Taxation of International Transactions

Which of the following transactions, if entered into by an NRA, is not subject to U.S.taxation?

Which of the following is not a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

Which of the following would not prevent an alien without a "green card" from being classified as a U.S.resident for income tax purposes?

Which of the following statements regarding the U.S.taxation of foreign persons is true?

A non-U.S.individual's "green card" remains in effect until:

Which of the following statements regarding the taxation of U.S.real property gains recognized by foreign persons not engaged in a U.S.trade or business is false? Gains from the disposition of U.S.real property are:

Which of the following statements regarding the U.S.taxation of foreign persons is true?

Which of the following statements regarding foreign persons not engaged in a U.S.trade or business is true?

Lang, an NRA who was not a resident of a treaty country, receives taxable dividends of $50,000 from U.S.corporations.Lang does not conduct a U.S.trade or business.Lang's dividends are taxed by the United States through withholding by the payor of:

The following income of a foreign corporation is not subject to the regular U.S.corporate income tax rates.

A U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

Shannon, a foreign person with a green card, spends the following days in the United States. Shannon's residency status for 2014 is: