CHAPTER 25 TAXATION OF INTERNATIONAL TRANSACTIONS

1. OutCo, a controlled foreign corporation in Meena, earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies. All of the dividend payors are located in Meena. OutCo’s Subpart F income for the year is:

a. $0.

b. $0 only if OutCo is engaged in a trade or business in Meena.

c. $600,000.

d. $600,000 only if OutCo is engaged in a trade or business in Meena.

2. Bryden, a controlled foreign corporation owned 100% by USCo, earned $900,000 in Subpart F income for the current year. Bryden’s current year E & P is $350,000, and its accumulated E & P is $15 million. What is the current year Subpart F deemed dividend to USCo?

a. $350,000.

b. $550,000.

c. $900,000.

d. $15 million.

3. Peanut, Inc., a U.S. corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of

$5,000 are withheld. Peanut’s worldwide taxable income is $900,000, and its U.S. Federal income tax liability before FTC is $270,000. What is Peanut’s foreign tax credit?

a. $500,000.

b. $275,000.

c. $150,000.

d. $5,000.

4. Maxim, Inc., a U.S. corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly­owned foreign corporation. ForCo’s undistributed E & P are $15 million and it has paid $6 million of foreign income taxes attributable to these earnings. What is Maxim’s deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

a. $0.

b. $360,000.

c. $900,000.

d. $6 million.

5. Chipper, Inc., a U.S. corporation, reports worldwide taxable income of $1 million, including a $300,000 dividend from Emma, Inc., a foreign corporation. Chipper’s U.S. tax liability before FTC is $340,000. Chipper owns 20% of Emma. Emma’s E & P after taxes is $8 million and it has paid foreign taxes of $2 million attributable to that E & P. If Chipper elects the FTC, its U.S. gross income with regard to the dividend from Emma is:

a. $300,000.

b. $340,000.

c. $375,000.

d. $400,000.

6. Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke’s E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia’s foreign tax credit related to the Starke dividend?

a. $22,500.

b. $56,250.

c. $150,000.

d. $750,000.

7. Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke’s E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia’s gross income related to the Starke dividend?

a. $206,250.

b. $150,000.

c. $56,250.

d. $22,500.

8. Kilps, a U.S. corporation, receives a $200,000 dividend from a 20% owned foreign corporation. The deemed-paid taxes attributable to this dividend are $40,000 and foreign taxes withheld on remittance of the dividend are $30,000. Kilps’s U.S. tax liability before the FTC is $350,000, the gross dividend income is $240,000, and Kilps’s worldwide taxable income is $1 million. Kilps’s foreign tax credit for the taxable year is:

a. $84,000.

b. $70,000.

c. $40,000.

d. $30,000.

9. Which of the following is a specific separate income “basket” for purposes of the foreign tax credit limitation

calculation?

a. Intangibles income.

b. Passive income.

c. Business income.

d. None of the above are separate FTC limitation baskets.

e. All of the above are separate FTC limitation baskets.

10.Kunst, a U.S. corporation, generates $100,000 of foreign-source income in the general income basket and $40,000

of foreign­source income in the passive income basket. Kunst’s worldwide taxable income is $1,200,000, and its

U.S. tax liability before FTC is $420,000. 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. $39,000.

c. $35,000.

d. $4,000.

11.A non­U.S. individual’s “green card” remains in effect until:

a. The individual discards it.

b. The individual leaves the U.S.

c. The individual has abandoned lawful permanent residency in the U.S.

d. The individual remains outside the U.S. for two full years.

12.Which of the following would notprevent an alien without a “green card” from being classified as a U.S. resident

for income tax purposes?

a. The individual was prevented from leaving the United States due to an illness which arose while in the United States.

b. The individual commutes daily from Mexico to the United States to work.

c. The individual is a foreign consul assigned to the United States.

d. The individual was in the United States to oversee her investments.

13.Luisa, a non-U.S. person with a green card, spends the following days in the United States.

Year 1 360 days

Year 2 210 days

Year 3 30 days

Luisa’s residency status for Year 3 is:

a. U.S. resident because she has a green card.

b. U.S. resident since she was a U.S. resident for the past immediately preceding two years.

c. Not a U.S. resident because Luisa was not in the United states for more than 30 days during Year 3.

d. Not a U.S. resident since, using the three-year test, Luisa is not present in the United States for at least 183 days.

14.Zhang, an NRA who is not a resident of a treaty country, receives taxable dividends of $50,000 from U.S. corporations. Zhang does not conduct a U.S. trade or business. Zhang’s dividends are subject to withholding by the payor of:

a. 35%.

b. 30%.

c. 15%.

d. 0%.

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

a. Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income.

b. Foreign persons with any U.S.-source income are taxed on net investment income (after expenses).

c. Foreign persons are not subject to U.S. tax if not engaged in a U.S. trade or business.

d. Foreign persons with only U.S.-source investment income are exempt from U.S. tax.