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ForCo, a subsidiary of a U.S. corporation incorporated in Belgium, manufactures widgets in Belgium and sells the widgets to its 100%-owned subsidiary in Germany. The income from the sale of widgets is not Subpart F foreign base company sales income.

A) True
B) False

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True

Carol, a citizen and resident of Adagio, reports gross income that is effectively connected with a U.S. business. No deductions are allowed against this income, and Carol's U.S. tax rate is a flat 30%.

A) True
B) False

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False

An appropriate transfer price is one that considers the risks, assets, and functions of the persons to whom income is assigned.

A) True
B) False

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Wellington, Inc., a U.S. 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. Wellington has been a CFC for the entire year and makes no distributions in the current year. Wellington must include in gross income:


A) $0.
B) $6 million.
C) $20 million.
D) $50 million.

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

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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.

A) True
B) False

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Dividends received from Murdock Corp., a corporation organized in Sustenato that earns 70% of its income from U.S. business activities, are 70% U.S.-source income.

A) True
B) False

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

A) True
B) False

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ForCo, a foreign corporation not engaged in a U.S. trade or business, recognizes a $3 million gain from the sale of land located in the United States. The amount realized on the sale was $50 million. Absent any exceptions, what is the required withholding amount on the part of the purchaser of this land?


A) $0
B) $300,000
C) $3 million
D) $5 million

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

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USCo, a U.S. corporation, purchases inventory from distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States. Profit on the sale is $10,000. What is the sourcing of the USCo's inventory sales income?


A) $5,000 U.S. source and $5,000 foreign source.
B) $5,000 U.S. source and $5,000 sourced based on location of the pertinent manufacturing assets.
C) $10,000 U.S. source.
D) $10,000 foreign source.

E) A) and D)
F) A) and C)

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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 $189,000. What is Peanut's foreign tax credit?


A) $500,000
B) $189,000
C) $105,000
D) $5,000

E) B) and C)
F) None of the above

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Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Upon repatriation to a CFC, it does not create dividend income.


A) Foreign base company income
B) Foreign personal holding company income
C) Controlled foreign corporation
D) U.S. shareholder
E) Previously taxed income
F) More than 10 percent
G) More than 50 percent
H) More than 80 percent

I) A) and C)
J) F) and H)

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Given the following information, determine whether FanCo, a foreign corporation, is a CFC. ย Shareholdersย ofย ย Votingย ย Foreignย Corporationย ย Powerย ย Classificationย ย Murrayย 24%ย U.S.ย personย ย Nancyย 20%ย U.S.ย personย ย Ottoย 40%ย Foreignย personย ย Patriciaย 16%ย U.S.ย personย ย Patriciaย isย Murrayโ€™sย daughter.ย \begin{array}{l}\begin{array} { l c l } \text { Shareholders of } & \text { Voting } & \\\text { Foreign Corporation } & \text { Power } & \text { Classification } \\\text { Murray } & 24 \% & \text { U.S. person } \\\text { Nancy } & 20 \% & \text { U.S. person } \\\text { Otto } & 40 \% & \text { Foreign person } \\\text { Patricia } & 16 \% & \text { U.S. person }\end{array}\\\text { Patricia is Murray's daughter. }\end{array}

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Voting Power Voting Power Total Sharehol...

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In working with the foreign tax credit, a U.S. corporation may be able to alleviate the problem of excess foreign taxes by:


A) Deducting the excess foreign taxes that do not qualify for the credit.
B) Repatriating more foreign income to the United States in the year there is an excess limitation.
C) Generating "same basket" foreign-source income that is subject to a tax rate higher than the U.S. tax rate.
D) Generating "same basket" foreign-source income that is subject to a tax rate lower than the U.S. tax rate.

E) C) and D)
F) B) and C)

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D

The sourcing rules of Federal income taxation apply to deductions as well as to income items.

A) True
B) False

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U.S. income tax treaties:


A) Involve three to seven countries as treaty partners.
B) Are renewable upon expiration every five years.
C) Are rare with countries in Africa.
D) Are rare with countries in Europe.

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

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The IRS can use ยง 482 reallocations to ensure that transactions between related parties are properly reflected in a tax return.

A) True
B) False

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Match the definition with the correct term. -U.S. taxpayers earning income outside the United States.


A) Inbound
B) Outbound
C) Allocation and apportionment
D) Qualified business unit
E) Tax haven
F) Income tax treaty
G) Section 482

H) C) and E)
I) A) and G)

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Which of the following statements best describes the primary purpose of the Subpart F income provisions?


A) They allow for a deferral of non-U.S.-source income from U.S. taxation.
B) They provide certainty as to the U.S. income tax treatment of cross-border transactions.
C) They prevent shifting of income from the United States to high-tax non-U.S. jurisdictions.
D) They prevent shifting of income from the United States to low-tax non-U.S. jurisdictions.

E) B) and D)
F) B) and C)

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The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.

A) True
B) False

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

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Most businesses ente...

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