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The IRS can use § 482 reallocations to ensure that transactions between related parties are properly reflected in a tax return.

A) True
B) False

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The property factor includes business assets that the taxpayer owns and those merely used under a lease agreement.

A) True
B) False

Correct Answer

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A typical state taxable income subtraction modification is the interest income earned from another state's bonds.

A) True
B) False

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Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

A) True
B) False

Correct Answer

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


A) There are about 70 bilateral income tax treaties between the United States and other countries.
B) Tax treaties generally provide for primary taxing rights that require the other treaty partner to allow a credit for the taxes paid on the twice-taxed income.
C) U.S.income tax treaties are written to set up a "network" of up to five foreign countries that are covered by the treaty language.
D) None of these statements is false.

E) A) and C)
F) C) and D)

Correct Answer

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Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.

A) True
B) False

Correct Answer

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In applying the typical apportionment formula:


A) The aggregate of state taxable incomes equals Federal taxable income.
B) The aggregate of state taxable incomes may not equal Federal taxable income.
C) When Federal taxable income is positive, all states' taxable incomes are positive.
D) When Federal taxable income is negative, aggregate state taxable incomes total to zero.

E) B) and C)
F) None of the above

Correct Answer

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An assembly worker earns a $50,000 salary and receives a fringe benefit package worth $15,000.The payroll factor assigns $65,000 for this employee.

A) True
B) False

Correct Answer

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Twenty unrelated U.S.persons equally own all of the stock of Quigley, a foreign corporation.Quigley is a CFC.

A) True
B) False

Correct Answer

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A controlled foreign corporation (CFC) realizes Subpart F income from:


A) Purchase of inventory from an unrelated U.S.person and sale outside the CFC country.
B) Purchase of inventory from a related U.S.person and sale outside the CFC country.
C) Services performed for the U.S.parent in a country in which the CFC was organized.
D) Services performed on behalf of an unrelated party in a country outside the country in which the CFC was organized.

E) None of the above
F) A) and B)

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In determining a corporation's taxable income for state income tax purposes, which of the following does not constitute a subtraction modification from Federal income?


A) Interest on U.S.obligations.
B) Expenses that are directly or indirectly related to state and municipal interest that is taxable for state purposes.
C) The amount by which the state depreciation deduction exceeds the corresponding Federal amount.
D) The amount by which the Federal depreciation deduction exceeds the corresponding state amount.

E) A) and D)
F) A) and B)

Correct Answer

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Which of the following statements best describes the primary purpose of the Subpart F income provisions?


A) They allow for a deferral of non-U.S.-source income from U.S.taxation.
B) They provide certainty as to the U.S.income tax treatment of cross-border transactions.
C) They prevent shifting of income from the United States to high-tax non-U.S.jurisdictions.
D) They prevent shifting of income from the United States to low-tax non-U.S.jurisdictions.

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

Correct Answer

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ForCo, a non-U.S.corporation based in Aldonza, purchases widgets from USCo, Inc., its U.S.parent corporation. The widgets are sold by ForCo to an unrelated foreign corporation in Aldonza.The income from sale of the widgets by ForCo is Subpart F foreign base company sales income.

A) True
B) False

Correct Answer

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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?


A) $0
B) $300,000
C) $3 million
D) $5 million

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

Correct Answer

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In which of the following independent situations would Slane, a foreign corporation, be classified as a controlled foreign corporation? The Slane stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.


A) Jen, Kathy, Leslie, David, Ben, and Mike are all U.S.citizens.
B) Jen, Kathy, Leslie, David, and Ben are all U.S.citizens.David is married to Kathy.Mike is a foreign resident and citizen.
C) Jen, Kathy, Leslie, David, and Ben are all U.S.citizens.Ben is Mike's son.Mike is a foreign resident and citizen.
D) Jen, Kathy, Leslie, David, and Ben are all U.S.citizens.Mike is a foreign resident and citizen.

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

Correct Answer

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Kunst, a U.S.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 $240,000.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?


A) $64,000
B) $24,000
C) $20,000
D) $4,000

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

Correct Answer

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Politicians frequently use tax credits and exemptions to create economic development incentives.

A) True
B) False

Correct Answer

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Public Law 86-272:


A) Was written by the Multistate Tax Commission.
B) Provides nexus definitions for sales of stocks and bonds.
C) Provides nexus definitions for the sale of medical and legal services.
D) Was adopted by Congress.

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

Correct Answer

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Nico lives in California.She was born in Peru but holds a green card.Nico is a nonresident alien (NRA).

A) True
B) False

Correct Answer

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In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact and allocated according to the location of property owned or used.

A) True
B) False

Correct Answer

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