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Exam 25: Taxation of International Transactions

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Question 71

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Abe,a U.S.shareholder under the CFC provisions,owns 49% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000,Abe is not taxed on receipt of a constructive dividend of $98,000 because he doesn't own more than 50% of the CFC.

A) True
B) False

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Question 72

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In allocating interest expense between U.S.and foreign sources,a taxpayer must use the tax basis of assets in determining the proper interest apportionment.

A) True
B) False

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Question 73

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Which of the following persons are typically concerned with the U.S.-sourcing rules for gross income?

WorldCo,a foreign corporation not engaged in a U.S.trade or business,receives $50,000 in interest income from deposits with the foreign branch of a U.S.bank.The U.S.bank earns 78% of its income from foreign sources.How much of WorldCo's interest income is U.S.source?

Hendricks Corporation,a domestic corporation,owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation,both foreign corporations.Ferrell owns the other 60 percent of Shane Corporation.Both Shane and Ferrell are CFCs.

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?

Wallack,Inc. ,a U.S.corporation,owns 100% of Orion,Ltd. ,a foreign corporation.Orion earns only general limitation income.During the current year,Orion paid Wallack a $5,000 dividend.The § 902 credit associated with this dividend is $3,000.The foreign jurisdiction requires a withholding tax of 10%,so Wallack received only $4,500 in cash as a result of the dividend.What is Wallack's total U.S.gross income reported as a result of the $4,500 cash dividend received?

If Polka,Inc. ,a U.S.taxpayer,pays foreign taxes of $50,000 on foreign-source single-category (basket)income of $90,000 and has worldwide taxable income of $450,000,on which it owes U.S.taxes of $157,500 before FTC,its FTC is $50,000.

During 2010,Martina,an NRA,receives interest income of $50,000 from Collins,Inc. ,an unrelated U.S.corporation.Considering the following facts related to Collins' operations,what is the source of the interest income received by Martina?

\Benchmark,Inc. ,a U.S.shareholder owns 100% of a CFC from which Benchmark receives a $3 million cash distribution.The CFC's E & P is composed of the following amounts. Benchmark recognizes a taxable dividend of:

Miles is a citizen of France and does not have permanent resident status in the United States.During the last three years he has spent a number of days in the United States. Is Miles treated as a U.S.resident for the current year?

Dividends received from a domestic corporation are totally U.S.source:

Which of the following statements regarding foreign persons not engaged in a U.S.trade or business is true?

In all cases,the sourcing of income is determined by the residence of the taxpayer.

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

Amelia,Inc. ,a domestic corporation receives a $100,000 cash dividend from Starke,Ltd. ,a § 902 noncontrolled foreign corporation (i.e. ,Amelia owns at least 10% but Starke is not a CFC) .Amelia owns 15% of Starke.Starke's post-1986 E & P is $2 million and it has paid foreign taxes of $1 million attributable to post-1986 E & P.What is the § 902 FTC allowed Amelia related to the Starke dividend?

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 source of income received for the use of intangible property is the country in which the owner of the property producing the income is resident.

Performance,Inc. ,a U.S.corporation,owns 100% of Krumb,Ltd. ,a foreign corporation.Krumb earns only general limitation income.During the current year,Krumb paid Performance a $200,000 dividend.The § 902 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 dividend received?

BendCo,Inc. ,a U.S.corporation,has foreign-source income and pays foreign taxes as follows. BendCo's worldwide taxable income is $1,600,000 and U.S.taxes before FTC are $560,000 (assume 35%).What is BendCo's U.S.tax liability after the FTC?