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Exam 24: The US Taxation of Multinational Transactions

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Question 51

True/False

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The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S. source income.

A) True
B) False

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Question 52

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Nicole is a citizen and resident of Australia. She has a full-time job in Australia and has lived there with her family for the past 10 years. In 2012, Nicole came to the United States on business and stayed for 180 days. She came to the United States again on business in 2013 and stayed for 150 days. In 2014 she came back to the United States on business and stayed for 100 days. Does Nicole meet the U.S. statutory definition of a resident alien in 2014 under the substantial presence test?

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Question 53

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Windmill Corporation, a Dutch corporation, is owned by the following unrelated persons: 50 percent by a U.S. corporation, 5 percent by a U.S. individual, and 45 percent by a Swiss corporation. During the year, Windmill earned $2,000,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Windmill?

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?

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?

Once a U.S. corporation chooses a method to allocate interest expense, either fair market value or tax book value, that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.

All taxes paid to a foreign government by a U.S. corporation are creditable on the corporation's U.S. tax return.

Sushi Corporation is a 100 percent owned Japanese subsidiary of Squid, Inc., a U.S. corporation. Sushi had post-1986 earnings and profits of ¥120,000,000 and post-1986 foreign taxes of $800,000. During the current year, Sushi paid a dividend of ¥60,000,000 to Squid. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a 0 percent withholding tax. Assume an exchange rate of ¥1 = $0.010. Squid reported U.S. taxable income of $2,000,000. Squid's U.S. tax rate is 34 percent. Compute Squid's net U.S. tax liability for the current year and excess FTC, if any.

Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in 2014. Taxable income included $1,800,000 of foreign source taxable income from the company's branch operations in Canada. All of the branch income is general category income. Reno paid Canadian income taxes of $720,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover for 2013. Use a U.S. corporate tax rate of 34%.

A U.S. corporation can use hybrid entities to avoid the application of subpart F to cross border payments made between wholly-owned entities outside the United States.

Subpart F income earned by a CFC will always be treated as a deemed dividend to the CFC's U.S. shareholders in the year the subpart F income is earned.

Gouda, S.A., a Belgium corporation, received the following sources of income during 2014: $10,000 interest income from a loan to its 100 percent owned Dutch subsidiary $20,000 dividend income from its 100 percent owned U.S. subsidiary $30,000 royalty income from its Irish subsidiary for use of a trademark outside the United States $40,000 rent income from its Canadian subsidiary for use of a warehouse located in Wisconsin $5,000 capital gain from sale of stock in its 40 percent owned New Zealand joint venture. Title passed in New Zealand. What amount of U.S. source income does Gouda have in 2014?

Holmdel, Inc., a U.S. corporation, received the following sources of income during 2014: $10,000 interest income from a loan to its 100 percent owned Swiss subsidiary $50,000 dividend income from its 100 percent owned French subsidiary $100,000 royalty income from its Bermuda subsidiary for use of a trademark outside the United States $25,000 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey $50,000 capital gain from sale of stock in its 40 percent owned Japanese joint venture. Title passed in Japan. What amount of foreign source income does Holmdel have in 2014?

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

Bismarck Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2014. Bismarck has $200,000 of foreign source taxable income characterized as general category income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the general category 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 2014 U.S. tax return and what is the amount of the carryforward, if any?

U.S. individuals and corporations are eligible for a deemed-paid credit on dividends received from foreign corporations.

Alhambra Corporation, a U.S. corporation, receives a dividend from its 100 percent owned Spanish subsidiary. For foreign tax credit purposes, the dividend will always be characterized as passive category income.

Ames Corporation has a precredit U.S. tax of $340,000 on $1,000,000 of taxable income in 2014. Ames has $600,000 of foreign source taxable income and paid $120,000 of income taxes to the Australian government on this income. All of the foreign source income is treated as general category income for foreign tax credit purposes. Ames's foreign tax credit on its 2014 tax return will be:

Which of the following foreign taxes are not creditable for U.S. tax purposes?