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Exam 9: Taxation of International Transactions

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Question 41

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AirCo,a domestic corporation,purchases inventory for resale from unrelated distributors within the United States and resells this inventory to customers outside the United States with title passing outside the United States.What is the source of AirCo's inventory sales income?

A) 50% U.S.source and 50% foreign source.
B) 100% U.S.source.
C) 100% foreign source.
D) 50% foreign source and 50% sourced based on location of manufacturing assets.

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

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Question 42

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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) .

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

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Question 43

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Generally,accrued foreign taxes are:

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 $90,000 of depreciation deductions on the equipment,all of which were allocated to U.S.-source income.USACo's adjusted basis in the equipment is $10,000 on the date of sale.What is the source of the $340,000 gain on the sale of this equipment?

A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly,indirectly,or constructively at least 10% of the voting power or value of a foreign corporation.

Given the following information,determine whether Greta,an alien,is a U.S.resident for 2010.Assume that Greta cannot establish a tax home in or a closer connection to a foreign country.

Wallack,Inc. ,a U.S.corporation,owns 100% of Orion,Ltd. ,a foreign corporation.Orion earns only general limitation income.During the current year,Orion paid Wallack a $5,000 dividend.The § 902 credit associated with this dividend is $3,000.The foreign jurisdiction requires a withholding tax of 10%,so Wallack received only $4,500 in cash as a result of the dividend.What is Wallack's total U.S.gross income reported as a result of the $4,500 cash dividend received?

Gain or loss on the exchange of foreign currency must be considered separately from the underlying transaction (e.g. ,the purchase or sale of goods).

Describe the importance of determining whether a foreign corporation is engaged in a U.S.trade or business.

An advance pricing agreement (APA) is an agreement between:

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 = $20) 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,if any,is recognized as a result of this transaction?

Amelia,Inc. ,a domestic corporation receives a $100,000 cash dividend from Starke,Ltd. ,a § 902 noncontrolled foreign corporation (i.e. ,Amelia owns at least 10% but Starke is not a CFC) .Amelia owns 15% of Starke.Starke's post-1986 E & P is $2 million and it has paid foreign taxes of $1 million attributable to post-1986 E & P.What is the § 902 FTC allowed Amelia related to the Starke dividend?

In all cases,the sourcing of income is determined by the residence of the taxpayer.

Which of the following determinations requires knowing the amount of one's foreign-source gross income?

The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

In which of the following independent situations would a foreign corporation be classified as a controlled foreign corporation?

WaterCo,a domestic corporation,purchases inventory for resale from unrelated distributors outside the United States and resells this inventory to customers inside the United States with title passing inside the United States.What is the source of WaterCo's inventory sales income?

Which of the following foreign taxes paid by a U.S.corporation are eligible for the foreign tax credit?

A PFIC is a U.S.-based mutual fund owned more than 50% by U.S.owners.

Discuss the policy reasons for the § 367 cross-border transfer rules.Provide two examples of transactions to which § 367 would apply.