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Exam 25: Taxation of International Transactions

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Question 41

Multiple Choice

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Which of the following statements concerning the sourcing of income from inventory produced by the taxpayer in the U.S.and sold outside the U.S.is true?

A) If title passes on the inventory outside the U.S., all of the inventory income is foreign source.
B) Because the inventory is manufactured in the U.S., all of the inventory income is U.S.source.
C) The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on location of production assets.
D) The taxpayer may use the 50-50 method to source one-half the income based on title passage and one-half the income based on where the sale negotiation takes place.

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

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Question 42

Multiple Choice

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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?

A) $0.
B) $11,000.
C) $39,000.
D) $50,000.

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

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Question 43

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LocalCo merges into HeirCo, a non-U.S.entity, in a transaction that would qualify as a "Type A" reorganization. The resulting realized gain is tax-deferred under U.S.income tax law, using §§ 351 and 368.

Generally, accrued foreign income taxes are translated at the:

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

Jilt, a non-U.S.corporation, not resident in a treaty country, operates a U.S.branch that earns effectively connected E & P of $4 million for the tax year. The branch increases its investments in U.S.property (its U.S.net equity) by $1,600,000.The branch pays a U.S.corporate income tax of $2,153,846.Jilt's branch profits tax is:

Which of the following statements regarding the translation of foreign income taxes is true?

A tax haven often is:

Subpart F income includes portfolio income like dividends and interest.

Describe and diagram the timeline that most businesses use to enter the international markets.

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

Serena, a nonresident alien, is employed by GlobalCo, a foreign corporation.Serena works in the United States for 3 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.

Without the foreign tax credit, double taxation would result when:

GlobalCo, a foreign corporation not engaged in a U.S.trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S.bank.The U.S.bank earns 24% of its income from foreign sources.How much of GlobalCo's interest income is U.S.source?

The United States has in force income tax treaties with about 70 countries.

Match the definition with the correct term.

"Inbound" and "offshore" asset transfers by a U.S.business can be subject to immediate Federal income taxation under § 367.

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

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?

BlueCo, a domestic corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation.BlueCo transfers $200 in inventory (basis = $50) and $900 in land (basis = $950) to GreenCo.GreenCo uses these assets in carrying on a trade or business outside the United States.What gain or loss, if any, is recognized as a result of this transaction?