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Exam 16: Multijurisdictional Taxation

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Question 31

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Under P.L.86-272, which of the following transactions by itself would create nexus with a state?

A) Having a sales employee inspect customer's inventory for specific product lines.
B) Using a manufacturer's representative for the taxpayer through a sales office in the state.
C) Executing a sales campaign using an advertising agency acting as an independent contractor for the taxpayer.
D) Maintaining inventory in the state by an independent contractor under a consignment plan.

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

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Question 32

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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.

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

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Question 33

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A unitary business applies a combined apportionment formula, including data from operations of all affiliates.

Section 482 is used by the U.S.Treasury to:

U.S.income tax treaties typically:

Which of the following statements regarding income sourcing is not correct?

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.

Zhao Company sold an asset on the first day of the tax year for $500,000.Zhao's Federal tax basis for the asset was $300,000.Because of differences in cost recovery schedules, the state regular-tax basis in the asset was $350,000.What modification, if any, should be made to Zhao's Federal taxable income in determining the correct taxable income for the typical state?

Which of the following statements regarding the taxation of U.S.real property gains recognized by non-U.S.persons not engaged in a U.S.trade or business is false? Gains from the disposition of U.S.real property are:

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 foreign-source income from the sale because his home country is not the United States.

The model law relating to the assignment of income among the states for corporations is:

OutCo, a controlled foreign corporation in Meena (located outside the United States) , 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:

Under P.L.86-272, which of the following transactions by itself would create nexus with a state?

A typical state taxable income addition modification is for the state's NOL allowed the taxpayer for the tax year.

Typical indicators of income tax nexus include the presence of customers in the state.

Typically, sales/use taxes constitute about 20% of a state's annual tax collections for most states.

By making a water's edge election, a multinational taxpayer can limit the reach of unitary principles to the apportionment factors and income of its U.S.and E.U.affiliates.

Flint Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income which is $750,000.This amount includes a $50,000 deduction for state income taxes.During the year, Flint received $10,000 interest on Federal obligations.X tax law does not allow a deduction for state income tax payments. Flint's taxable income for X purposes is:

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?

Ramirez Corporation, which is subject to income tax only in State A, generated the following income and deductions: Federal taxable income is the starting point in computing A taxable income.State income taxes are not deductible for A tax purposes.Ramirez's A taxable income is: