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Exam 13: The Us Taxation of Multinational Transactions

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Question 21

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Boomerang Corporation, a New Zealand corporation, is owned by the following unrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and 45 percent by an Australian corporation. During the year, Boomerang earned $3,000,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Boomerang?

A) Boomerang is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $1,200,000 and $450,000, respectively.
B) Boomerang is a CFC and only the U.S. corporation will have a deemed dividend of $1,200,000.
C) Boomerang is a CFC and the U.S. corporation, U.S. individual, and Australian corporation will have a deemed dividend of $1,200,000, $450,000, and $1,350,000, respectively.
D) Boomerang is not a CFC and none of the shareholders will have a deemed dividend under subpart F.

E) A) and B)
F) B) and C)

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Question 22

Multiple Choice

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Which of the following expenses incurred by a U.S. corporation is not subject to special apportionment rules for foreign tax credit purposes?

A) Interest
B) Research and experimental
C) Advertising
D) State and local income taxes

E) All of the above
F) B) and C)

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Question 23

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Cecilia, a Brazilian citizen and resident, spent 120 days working in the United States in the current year and earned $50,000. Because she spent more than 90 days in the United States, Cecilia's income will be treated as U.S. source and subject to U.S. taxation. The United States does not have an income tax treaty with Brazil.

Santa Fe Corporation manufactured inventory in the United States and sold the inventory to customers in Mexico. Gross profit from the sale of the inventory was $247,000. Title to the inventory passed FOB: shipping point. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

Under a U.S. treaty, what must a non-resident corporation create in the United States before it is subject to U.S. taxation on its business profits?

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in the current year. Boca also received a dividend of $100,000 from the corporation's 100 percent owned subsidiary in Italy. The dividend qualifies for the 100 percent dividends received deduction. The Italian government imposed a withholding tax of $5,000 on the dividend. Compute Boca Corporation's net U.S. tax liability for the current year.

Pierre Corporation has a precredit U.S. tax of $315,000 on $1,565,000 of taxable income in the current year. Pierre has $313,000 of foreign source taxable income characterized as foreign branch income and $156,500 of foreign source taxable income characterized as passive category income. Pierre paid $63,000 of foreign income taxes on the foreign branch income and $28,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Pierre use on its current U.S. tax return and what is the amount of the carryforward, if any?

A Japanese corporation owned by 11 U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.

Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?

Nexus involves the criteria used by a government to assert its right to tax a person or transaction within or without its borders.

All income earned by a Swiss corporation owned by a U.S. corporation is deferred from U.S. taxation until such income is remitted back to the United States.

Which of the following statements best describes the substantial presence test as it applies to determining if a non-U.S. citizen is a resident alien for U.S. tax purposes?

Which of the following is not a benefit derived from an income tax treaty between the United States and another country?

Saginaw Steel Corporation has a precredit U.S. tax of $123,000 on $518,000 of taxable income. Saginaw has $218,000 of foreign source taxable income and paid $78,000 of income taxes to the German government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Saginaw's foreign tax credit on its tax return will be: (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)

Gwendolyn was physically present in the United States for 106 days in 2020, 228 days in 2019, and 126 days in 2018. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2020?

Austin Corporation, a U.S. corporation, received the following investment income during the current year: $50,000 of dividend income from ownership of stock in a French corporation, $20,000 interest on a loan to its Dutch subsidiary, $40,000 royalty from its 50 percent owned Irish venture, and $30,000 capital gain from sale of its stock in a Brazilian corporation. How much of Austin's income is treated as foreign source?

Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?

Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from the sale of the inventory was $300,000. Title to the inventory passed FOB: destination. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

Guido was physically present in the United States for 150 days in 2020, 120 days in 2019, and 90 days in 2018. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2020?

Bismarck Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in the current year. Bismarck has $200,000 of foreign source taxable income characterized as foreign branch income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the foreign branch income and $10,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Bismarck use on its current-year U.S. tax return and what is the amount of the carryforward, if any?