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Exam 9: Taxation of International Transactions

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Question 31

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Which of the following is not a foreign person?

A) Foreign corporation 51% owned by U.S. shareholders.
B) Foreign corporation 100% owned by a domestic corporation.
C) Citizen of Germany with U.S. permanent resident status (i.e., green card) .
D) Citizen of Italy who spends 14 days vacationing in the United States.

E) None of the above
F) A) and D)

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Question 32

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

A) True
B) False

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Question 33

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

During Year 4, Josita, an NRA, receives interest income of $50,000 from Talmadge, Inc., an unrelated U.S. corporation. Considering the following facts related to Talmadge's operations, what is the source of the interest income received by Josita?

In 2013, George renounces his U.S. citizenship and moves to Fredonia, where income tax rates are very low. George is a multimillionaire and says he "has had it" with high Federal income taxes on wealthy individuals like himself. In 2016, George's U.S.­source income is $1.5 million. That income escapes Federal income taxes.

The § 367 cross­border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income, e.g. §§ 351 and 368. What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.

In allocating interest expense between U.S. and foreign sources, a taxpayer elects to use either the tax basis of the income-producing assets or their fair market values.

Julio, a nonresident alien, realizes a gain on the sale of commercial real estate located in Omaha. The real estate was sold to Mariana, Julio's cousin who is also a nonresident alien. Julio recognizes foreign­source income from the sale because his home country is not the U.S.

Dark, Inc., a U.S. corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany. Dark reports $100,000 of taxable income from Dunkel on its U.S. tax return, along with $400,000 of taxable income from its U.S. operations. Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S. tax rate of 35%, what is Dark's U.S. tax liability after any allowable foreign tax credits?

GoldCo, a U.S. corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. GoldCo 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 U.S. What gain or loss, if any, does GoldCo recognize as a result of this transaction?

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:

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.

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:

Unused foreign tax credits are carried back two years and then forward 20 years.

Quest is organized and operates in the U.K. Its U.S. effectively connected earnings for the taxable year are $900,000 and its net U.S. equity has increased by $40,000. Quest's dividend equivalent amount for the tax year is $860,000.

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?

Activity that creates the potential for effectively connected income.

A "U.S. shareholder" for purposes of CFC classification is any U.S. person who owns directly, indirectly, and constructively at least 50% of the voting power of a foreign corporation.

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?

Fulton, 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 $2 million and at the end of the tax year is $1.5 million. Fulton is organized in a nontreaty country. Fulton's dividend equivalent amount for the year is: