Law question data bank

919. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #1
GreenCo, a domestic corporation, earns $25 million of taxable income from U.S. sources and $5 million of taxable income from foreign sources. What amount of taxable income does GreenCo report on its U.S. tax return?

a. $30 million.
b. $25 million.
c. $30 million less any tax paid on U.S. income.
d. $25 million less any tax paid on the foreign income.

920. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #2
Without the foreign tax credit, double taxation would result when:

a. The United States taxes the U.S.-source income of a U.S. resident.
b. The United States and a foreign country both tax the foreign-source income of a U.S. resident.
c. A foreign country taxes the foreign-source income of a nonresident alien.
d. Only the United States taxes the foreign-source income of a U.S. resident (e.g., a treaty prevents foreign taxation).

921. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #3
U.S. income tax treaties:

a. Provide rules by which multinational taxpayers avoid double taxation.
b. Provide for taxation exclusively by the source country.
c. Provide that the country with the highest tax rate will be allowed exclusive tax collection.
d. Provide for taxation exclusively by the country of residence.

922. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #4
Which of the following statements is false in regard to the U.S. income tax treaty program?

a. There are over 50 income tax treaties between the U.S. 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. Residence of the taxpayer is an important consideration in applying tax treaties, while the presence of a permanent establishment is not.
d. None of the above statements is false.

923. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #5
ForCo, a foreign corporation, receives interest income of $100,000 from USCo, an unrelated domestic corporation. USCo has historically earned 85% of its income from foreign sources. What amount of ForCo’s interest income is U.S. source?

a. $100,000.
b. $28,000.
c. $18,000.
d. $0.

924. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #6
Dividends received from a domestic corporation are totally U.S. source:

a. If the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business.
b. Unless the corporation earns at least 80% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business.
c. If the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a U.S. trade or business.
d. Unless the corporation earns at least 25% of its gross income over the immediately preceding three tax years from the active conduct of a foreign trade or business.
e. In all of the above cases.

925. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #7
Chang, an NRA, is employed by Fisher, Inc., a foreign corporation. In November, Chang spends 12 days in the United States performing consulting services for Fisher’s U.S. branch. She earns $5,000 per month. A month includes 20 workdays.

a. Chang has no U.S.-source income, under the commercial traveler exception.
b. Chang has $3,000 U.S.-source income, since her foreign employer has a U.S. branch.
c. Chang has $60,000 U.S.-source income which is exempt from U.S. taxation, since she is in the U.S. for 90 days or less.
d. Chang has $60,000 U.S.-source income which is exempt from U.S. taxation, since she is working for a foreign employer.

926. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #8
USCo, a domestic corporation, purchases inventory for resale from distributors within the U.S. and resells this inventory to customers outside the U.S., with title passing outside the U.S. What is the source of the USCo’s inventory sales income?

a. 50% U.S. source and 50% foreign source.
b. 50% foreign source and 50% sourced based on location of manufacturing assets.
c. 100% U.S. source.
d. 100% foreign source.

927. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #9
Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign employer. She spends 50 days in the United States and earns $15,000 for a two-month period. This amount is attributable to 40 U.S. working days and 10 foreign working days. Her employer does not have a U.S. trade or business and Liang spends no other time in the U.S. for the tax year. Liang’s U.S.-source taxable income is:

a. $0.
b. $3,000.
c. $12,000.
d. $15,000.

928. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #10
Olaf, a citizen of Norway with no trade or business activities in the United States, sells at a gain 200 shares of MicroShift, Inc., a U.S. company. The sale takes place through Olaf’s broker in Oslo. How is this gain treated for U.S. tax purposes?

a. It is foreign-source income subject to U.S. taxation.
b. It is foreign-source income not subject to U.S. taxation.
c. It is U.S.-source income subject to U.S. taxation.
d. It is U.S.-source income exempt from U.S. taxation.

929. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #11
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?

a. $250,000 U.S. source and $80,000 foreign source.
b. $330,000 U.S. source.
c. $330,000 foreign source.
d. $250,000 foreign source and $80,000 U.S. source.

930. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #12
Flan, a U.S. corporation, reports $250,000 interest expense for the tax year. None of the interest relates to nonrecourse debt or loans from affiliated corporations. Flan’s U.S. and foreign assets are as follows.

Fair market value—
U.S. assets	$ 5,000,000
Foreign assets	$10,000,000
Tax book value—
U.S. assets	$ 2,000,000
Foreign assets	$ 1,000,000

How should Flan assign its interest expense between U.S. and foreign sources to maximize its FTC for the current year?

a. Using tax book values.
b. Using tax book value for U.S. source and fair market value for foreign source.
c. Using fair market value.
d. Using fair market value for U.S. source and tax book value for foreign source.

931. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #13
Which of the following statements best describes the purpose of § 482, under which the Treasury can reallocate income and deductions among related taxpayers?

a. To provide tax benefits to U.S. multinationals that export U.S. produced property.
b. To allow the IRS to select the best method for determining transfer prices for U.S. taxpayers.
c. To alleviate double taxation problems generated by related entities doing business in two or more countries.
d. To place a controlled entity on a tax parity with an uncontrolled entity with regard to prices charged by the entities.

932. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #14
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.

933. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #15
An advance pricing agreement (APA) is used between:

a. Two or more governments.
b. Two related taxpayers.
c. The taxpayer and the IRS.
d. The IRS and U.S. taxing authorities.

934. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #16
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?

a. Flapp does not have a foreign currency exchange gain or loss, since it conducts all of its transactions in the U.S. dollar.
b. Flapp’s account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can.) and it collects on the receivable when the exchange rate is $1US: $1.25Can. Flapp has an exchange gain of $50,000.
c. Flapp’s account receivable for the sale is $1 million (when the exchange rate is $1US: $1.2Can.). It collects on the receivable at $1US: $1.25Can. Flapp has an exchange loss of $5,000.
d. Flapp’s foreign currency exchange loss is $50,000.

935. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #17
Wood, a U.S. corporation, owns Holz, a German corporation. Wood receives a dividend (non-Subpart F income) from Holz of 75,000€. The average exchange rate for the year is $1US: 0.6€, and the exchange rate on the date of the dividend distribution is $1US: 0.80€. Wood’s exchange gain or loss is:

a. $15,000 loss.
b. $15,000 gain.
c. $75,000 gain.
d. $0. There is no exchange gain or loss on a dividend distribution.

936. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #18
Wood, a U.S. corporation owns 30% of Hout, a foreign corporation. The remaining 70% of Hout is owned by other foreign corporations not controlled by Wood. Hout’s functional currency is the euro. Wood receives a 50,000€ distribution from Hout. If the average exchange rate for the E & P to which the dividend is attributed is 1.2€: $1, the exchange rate at year end is .95€: $1, and on the date of the dividend payment the exchange rate is 1.1€: $1, what is Wood’s tax result from the distribution?

a. Wood receives a dividend of $45,455 and realizes an exchange gain of $3,788 [$45,455 minus $41,667 (50,000€/1.2)].
b. Wood receives a dividend of $52,632 (50,000€/.95) with no exchange gain or loss.
c. Wood receives a dividend of $41,667 and realizes an exchange loss of $3,788 ($41,667 minus $45,455).
d. Wood receives a dividend of $45,455 (50,000€/1.1) with no exchange gain or loss.

937. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS Question MC #19
Generally, accrued foreign taxes are:

a. Translated at the exchange rate when paid.
b. Translated at the exchange rate on date accrued.
c. Translated at the average exchange rate for the tax year.
d. Translated at the average exchange rate for the last five years.

938. Question MC #20
Which of the following statements regarding translation of foreign taxes is true?

a. Foreign taxes are typically paid in a foreign currency and thus must be converted to U.S. dollars when used as a FTC on a U.S. return.
b. Foreign taxes are translated into U.S. dollars only when such translation provides a tax benefit to the taxpayer.
c. Translation of foreign taxes into U.S. dollars helps manage the U.S. balance of trade.
d. Translation of foreign taxes into U.S. dollars encourages foreign corporations to set up operations in the United States.

939. Question MC #21
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?

a. $0.
b. ($50).
c. $100.
d. $150.

940. Question MC #22
RedCo, a domestic corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. RedCo transfers $200 in Yen (basis = $150) and $900 in land (basis = $925) 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?

a. $0.
b. $50.
c. $25.
d. ($25).

941. Question MC #23
Which of the following transactions by a U.S. corporation may result in taxation under § 367?

a. Incorporation of U.S branch as a U.S. corporation when the branch earns foreign-source income.
b. Incorporation of a U.S. branch as a U.S. corporation if the new U.S. corporation also has foreign shareholders.
c. Incorporation of a U.S. branch as a U.S. corporation if the new U.S. corporation has no foreign shareholders.
d. All the above.
e. None of the above.

942. Question MC #24
A tax haven often is:

a. A country with high internal taxes.
b. A country without income tax treaties.
c. A country with no or low internal taxes.
d. A country that prohibits “treaty shopping.”
e. None of the above statements is true.

943. Question MC #25
In which of the following independent situations would a foreign corporation be classified as a controlled foreign corporation?

a. The stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike. Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. Mike is a foreign resident and citizen.
b. The stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike. Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. David is married to Kathy. Mike is a foreign resident and citizen.
c. The stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike. Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. Ben is Mike’s son. Mike is a foreign resident and citizen.
d. The stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike. Jen, Kathy, Leslie, David, Ben, and Mike are all U.S. citizens.

944. Question MC #26
The following persons own Schlecht Corporation, a foreign corporation.

Jim, U.S. individual	35%
Gina, U.S. individual	15%
Marina, U.S. individual	8%
Pedro, U.S. individual	12%
Chee, non-U.S. individual	30%

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?

a. Schlecht is not a CFC.
b. Chee includes $90,000 in gross income.
c. Marina is not a U.S. shareholder.
d. Marina includes $24,000 in gross income.
e. None of the above statements is correct.

945. Question MC #27
Copp, Inc., a domestic corporation, owns 30% of a CFC that has $50 million of earnings and profits for the current year. Included in that amount is $20 million of Subpart F income. Copp has been a CFC for the entire year and makes no distributions in the current year. Copp must include in gross income (before any § 78 gross-up):

a. $0.
b. $50 million.
c. $20 million.
d. $6 million.

946. Question MC #28
A controlled foreign corporation (CFC) realizes Subpart F income from:

a. Purchase of inventory from unrelated party and sale outside the CFC country.
b. Purchase of inventory from a related party 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 transactions.

947. Question MC #29
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:

a. Sale to anyone inside the CFC country.
b. Sale to anyone outside the CFC country.
c. Sale to a related party outside the CFC country.
d. Sale to a non-related party outside the CFC country.

948. Question MC #30
Steve, Inc., a U.S. shareholder owns 100% of a CFC from which Steve receives a $3 million cash distribution. The CFC’s E & P is composed of the following amounts.

·	$1,500,000 attributable to previously taxed increases in investment in U.S. property.
·	$500,000 attributable to previously taxed Subpart F income.
·	$4,800,000 attributable to other E & P.

Steve recognizes a taxable dividend of:

a. $3 million.
b. $2 million.
c. $1.5 million.
d. $0.

949. Question MC #31
OutCo, a controlled foreign corporation, earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies. All of the unrelated companies are located in OutCo’s country of incorporation. OutCo’s Subpart F income for the year is:

a. $0.
b. $0 only if OutCo is engaged in a trade or business in its home country.
c. $600,000 only if OutCo is engaged in a trade or business in its home country.
d. $600,000.

950. Question MC #32
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?

a. $250,000.
b. $650,000.
c. $900,000.
d. $18 million.

951. Question MC #33
Peanut, Inc., a domestic corporation, receives $500,000 of foreign-source interest income on which foreign taxes of $5,000 are withheld. Its worldwide taxable income is $900,000, and U.S. tax liability before FTC is $315,000. What is Peanut’s foreign tax credit?

a. $500,000.
b. $315,000.
c. $175,000.
d. $5,000.

952. Question MC #34
Abbott, Inc., a domestic corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo’s post-1986 undistributed E & P are $18 million and it has paid $12 million of foreign income taxes attributable to these earnings. What is Abbott’s deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?

a. $0.
b. $600,000.
c. $900,000.
d. $18 million.

953. Question MC #35
Ridge, Inc., a domestic corporation, reports worldwide taxable income of $800,000, including a $300,000 dividend from Emma, Inc., a foreign corporation. Ridge’s U.S. tax liability before FTC is $280,000. Ridge owns 20% of Emma. Emma’s post-1986 E & P after taxes is $8 million and it has paid foreign taxes of $4 million attributable to that E & P. If Ridge elects the FTC, its U.S. gross income with regard to the dividend from Emma is:

a. $450,000.
b. $300,000.
c. $90,000.
d. $60,000.

954. Question MC #36
Amber, Inc., a domestic corporation receives a $150,000 cash dividend from Starke, Ltd. Amber owns 15% of Starke. Starke’s post-1986 E & P is $2 million and it has paid foreign taxes of $1 million attributable to that E & P. What is Amber’s foreign tax credit related to the Starke dividend?

a. $200,000.
b. $150,000.
c. $100,000.
d. $75,000.

955. Question MC #37
Amber, Inc., a domestic corporation receives a $150,000 cash dividend from Starke, Ltd. Amber owns 15% of Starke. Starke’s post-1986 E & P is $2 million and it has paid foreign taxes of $1 million attributable to that E & P. What is Amber’s gross income related to the Starke dividend?

a. $225,000.
b. $150,000.
c. $33,750.
d. $22,500.

956. Question MC #38
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.

957. Question MC #39
Which of the following is not a specific separate income “basket” for purposes of the foreign tax credit limitation calculation?

a. Business income.
b. Passive income.
c. Intangibles income.
d. None of the above are separate FTC limitation baskets.
e. All of the above are separate FTC limitation baskets.

958. Question MC #40
USCo, a domestic corporation, receives $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket. Worldwide taxable income is $1,200,000 and the 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 USCo’s foreign tax credit for the tax year?

a. $39,000.
b. $64,000.
c. $60,000.
d. $4,000.
e. Some other amount.

959. Question MC #41
A non-U.S. individual’s “green card” remains in effect until:

a. The individual discards it.
b. The individual leaves the United States
c. The individual remains outside the United States for two years.
d. The card has been revoked or the individual has abandoned lawful permanent residency in the U.S.

960. Question MC #42
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. The individual was in the United States to oversee her investments.
b. The individual was prevented from leaving the United States due to an illness which arose while in the United States.
c. The individual is a foreign consul assigned to the United States.
d. The individual commutes daily from Mexico to the United States to work.

961. Question MC #43
Shannon, a foreign person with a green card, spends the following days in the United States.

2010	360 days
2011	150 days
2012	30 days

Shannon’s residency status for 2012 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 Shannon was not in the United states for at least 31 days during 2012.
d. Not a U.S. resident since, using the three-year test, Shannon is not present in the United states for at least 183 days.

962. Question MC #44
Lang, an NRA who was not a resident of a treaty country, receives taxable dividends of $50,000 from U.S. corporations. Lang does not conduct a U.S. trade or business. Lang’s dividends are taxed by the United States through withholding by the payor of:

a. 0%.
b. 15%.
c. 30%.
d. 35%.

963. Question MC #45
Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

a. Foreign persons are not subject to U.S. tax if not engaged in a U.S. trade or business.
b. Foreign persons with any U.S.-source income are taxed on net investment income (after expenses).
c. Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income.
d. Foreign persons with only U.S.-source investment income are exempt from U.S. tax.
e. None of the above statements are true.

964. Question MC #46
The following income of a foreign corporation is not subject to the regular U.S. corporate income tax rates.

a. Capital gains effectively connected with a U.S. trade or business.
b. FIRPTA gains.
c. Fixed, determinable, annual or periodic income effectively connected with a U.S. trade or business.
d. Income from sale of inventory where title passes in the United States, but no U.S. trade or business exists.