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Exam 9: Taxation of International Transactions

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Question 61

Multiple Choice

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USCo, a U.S. corporation, receives $700,000 of foreign-source passive income on which foreign taxes of $70,000 are withheld. Its worldwide taxable income is $1,500,000, and its U.S. tax liability before the foreign tax credit is $315,000. What is USCo's allowed foreign tax credit?

A) $70,000
B) $147,000
C) $315,000
D) $385,000

E) None of the above
F) All of the above

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Question 62

Multiple Choice

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U.S. income tax treaties can be described as:

A) Napoleonic.
B) Spoke-and-Wheel.
C) Balanced.
D) Bilateral.

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

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Question 63

Multiple Choice

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Luisa, a non-U.S. person with a green card, spends the following days in the United States. Year 1 360 days Year 2 210 days Year 3 30 days Luisa's residency status for year 3 is:

Match the definition with the correct term. -Income of foreign person taxed through filing of a U.S. tax return with deductions allowed against gross income.

The transfer of the assets of a U.S. corporation's foreign branch to a newly formed foreign corporation is always tax deferred under § 351.

Liang, an NRA, is sent to the United States by Fulston Corporation, her non-U.S. employer. She spends 50 days in the United States and earns $20,000 for a two-month period. This amount is attributable to 40 U.S. working days and 10 non-U.S. working days. Fulston does not have a United States trade or business, and Liang spends no other time in the United States for the tax year. Liang's U.S.-source taxable income is:

AirCo, a domestic corporation, purchases inventory for resale from unrelated distributors within the United States and resells this inventory to customers outside the United States with title passing outside the United States. What is the sourcing of AirCo's inventory sales income?

Which of the following foreign taxes paid by a U.S. corporation may be eligible for the foreign tax credit?

Match the definition with the correct term. -A business operation that accounts for profits and losses using its functional currency.

Britta, Inc., a U.S. corporation, reports foreign-source income and pays foreign taxes as follows. $\begin{array} { l r r } &\text { Income } & \text { Taxes } \\\text { Passive category } & \$ 200,000 & \$ 10,000 \\\text { General limitation category } & 800,000 & 350,000\end{array}$ Britta's worldwide taxable income is $1,600,000 and U.S. taxes before FTC are $336,000 21% tax rate). What is Britta's U.S. tax liability after the FTC?

Serena, a nonresident alien, is employed by GlobalCo, a non-U.S. corporation. She works in the United States for three days during the year, receiving a gross salary of $2,500 for this period. GlobalCo is not engaged in a U.S. trade or business. Under the commercial traveler exception, the $2,500 is not classified as U.S.-source income.

Given the following information, determine whether Greta, an alien, is a U.S. resident for year 3. Greta cannot establish a tax home in or a closer connection to a foreign country. $\begin{array}{l}\text { Year}&\text { Number of Days in the United States }\\3 & 120 \\2 & 150 \\1 & 240\end{array}$

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Ownership threshold for U.S. shareholders to be deemed a controlled foreign corporation.

Which of the following is not a foreign person?

Yvonne is a citizen of France and does not have permanent resident status in the United States. During the last three years, she has spent a number of days in the United States. Current year - 150 days First prior year - 150 days Second prior year - 90 days Is Yvonne treated as a U.S. resident for the current year?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A CFC's profits from sales of goods and services.

Freda was born and continues to live in Uruguay. She exports widgets to U.S. customers. The United States does not have in force an income tax treaty with Uruguay. Freda's net U.S. income from the widgets is subject to a flat 30% Federal income tax rate.

In international corporate income taxation, what are the uses of the "sourcing rules" in computing Federal taxable income?

The following persons own Schlecht Corporation, a non-U.S.entity. Jim, U.S. individual 35% Gina, U.S. individual 15% Marina, U.S. individual 8% Pedro, U.S. individual 12% Chee, non-U.S. individual 30% None of the shareholders are related. Subpart F income for the tax year is $300,000. No distributions are made. Which of the following statements is correct?

The § 367 cross-border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income e.g. §§ 351 and 368.) What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.