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Exam 25: Taxation of International Transactions

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Question 21

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Section 482 is used by the Treasury to:

A) Force taxpayers to use arms-length transfer pricing on transactions between related parties.
B) Reallocate income, deductions, etc., to a related taxpayer to minimize tax liability.
C) Increase information that is reported about U.S. corporations with non-U.S. owners.
D) All of the above.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 22

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A Qualified Business Unit of a U.S.corporation that operates in Germany generally uses the Euro as its functional currency.

A) True
B) False

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Question 23

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Which of the following income items does not represent Subpart F income if earned by a controlled foreign corporation? Purchase of inventory from the U.S.parent,followed by:

USCo,a domestic 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 $525,000.What is USCo's allowed foreign tax credit?

OutCo,a controlled foreign corporation owned 100% by USCo,earned $900,000 in Subpart F income for the current year.OutCo's current year E & P is $250,000 and its accumulated E & P is $18 million.What is the current year Subpart F deemed dividend to USCo?

U.S.income tax treaties:

During the current year,USACo (a domestic corporation) sold equipment to FrenchCo,a foreign corporation,for $350,000,with title passing to the buyer in France.USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment,all of which were allocated to U.S.-source income.USACo's adjusted basis in the equipment is $20,000 on the date of sale.What is the source of the $330,000 gain on the sale of this equipment?

The following persons own Schlecht Corporation,a foreign corporation. 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?

Which of the following is not a U.S.person?

Gains on the sale of U.S.real property held directly or indirectly through U.S.stock ownership by NRAs and foreign corporations are subject to taxation under FIRPTA.

A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly,indirectly,or constructively at least 10% of the voting power or value of a foreign corporation.

The U.S.system for taxing income earned outside its borders by U.S.persons is referred to as the territorial approach because only income earned within the U.S.border is subject to taxation.

A domestic corporation is one whose assets are primarily (> 50%)located in the U.S.

Flapp Corporation,a domestic corporation,conducts all of its transactions in the U.S.dollar.It sells inventory for $1 million to a Canadian company when the exchange rate is $1US: $1.2Can.The Canadian company pays for the inventory when the exchange rate is $1US: $1.25Can.What is Flapp's exchange gain or loss on this sale?

Match the definition with the correct term.

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?

Match the definition with the correct term.

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?

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

Freiburg,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 $3 million and at the end of the tax year is $2.4 million.Freiburg is organized in a nontreaty country.Compute Freiburg's branch profits tax for the year.