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Exam 13: The Ustaxation of Multinational Transactions

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Question 31

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Portsmouth Corporation,a British corporation,is a wholly owned subsidiary of Salem Corporation,a U.S.corporation.During the year,Portsmouth reported the following income: $250,000 interest income received from a loan to an unrelated French corporation. $100,000 dividend income received from a less than 1 percent owned unrelated Dutch corporation. $150,000 rent income from an unrelated British corporation on property Portsmouth actively manages. $500,000 gross profit from the sale of inventory manufactured by Portsmouth in Great Britain and sold to a 100 percent owned subsidiary in Germany. What amount of subpart F income does Portsmouth recognize in the current year?

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$350,000
The interest income and dividen...

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Question 32

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Cheyenne Corporation is a U.S.corporation engaged in the manufacture and sale of mining equipment.The company handles its export sales through sales branches in Canada and Mexico.The average tax book value of Cheyenne's assets for the year was $200 million,of which $100 million generated U.S.source income and $100 million generated foreign source income.The average fair market value of Cheyenne's assets was $600 million,of which $400 million generated U.S.source income and $200 million generated foreign source income.Cheyenne's total interest expense for the year was $30 million.What is the minimum amount of interest expense that Cheyenne can apportion against its foreign source gross income for foreign tax credit purposes,assuming the company can elect either apportionment method?

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$10 million
Under the fair market value ...

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Question 33

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Which of the following items of foreign source income is classified as passive category income for foreign tax credit purposes?

Hazelton Corporation,a U.S.corporation,manufactures golf equipment.Hazelton reported sales from this product group of $100 million,of which $40 million were foreign source sales.The gross profit percentage for domestic sales was 20%,and the gross profit percentage from foreign sales was 30%.Hazelton incurred R&E expenses of $10 million,all of which were conducted in the United States.What is the minimum amount of the R&E expense that can be apportioned to foreign source gross income for foreign tax credit purposes,assuming the company can elect either apportionment method?

Once a U.S.corporation chooses a method to allocate interest expense,either fair market value or tax book value,that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.

The foreign tax credit regime is the primary mechanism used by the United States government to mitigate or eliminate the potential double taxation of income earned by U.S.persons outside the United States.

A hybrid entity established in Ireland is treated as a flow-through entity for U.S.tax purposes and a corporation for Irish tax purposes.

All passive income earned by a CFC will be treated as foreign personal holding company income under subpart F for U.S.tax purposes.

Russell Starling,an Australian citizen and resident,received the following investment income during 2017: $5,000 of dividend income from ownership of stock in a U.S.corporation,$10,000 interest from a certificate of deposit in a U.S.bank,$3,000 of interest income earned from a loan to Clint Westwood,a U.S.citizen,and $2,000 capital gain from sale of a stock in a U.S.corporation.How much of Russell's income will be subject to U.S.taxation in 2017?

Janet Mothra,a U.S.citizen,is employed by Caterpillar Corporation,a U.S.corporation.In May 2017,Caterpillar relocated Janet to its operations in Spain for the remainder of 2017.Janet was paid a salary of $200,000.As part of her compensation package for moving to Spain,Janet received a housing allowance of $40,000.Janet's salary was earned ratably over the twelve month period.During 2017 Janet worked 280 days,168 of which were in Spain and 112 of which were in the United States.How much of Janet's total compensation is treated as foreign source income for 2017?

Which of the following statements best describes how the deemed paid credit is computed by a U.S.corporation?

Jesse Stone is a citizen and bona fide resident of Great Britain.During 2017,Jesse received the following income: Compensation of $10 million from performing concerts in the United States. Cash dividends of $20,000 from a U.S.corporation. Interest of $1,000 from a U.S.citizen who is a resident of Ireland. Rent of $10,000 from British residents who rented Jesse's townhouse in Orlando,Florida. Gain of $50,000 on the sale of stock in a U.S.corporation. Determine the source (U.S.or foreign)of each item of income Jesse received in 2017.

Portland Corporation is a U.S.corporation engaged in the manufacture and sale of fishing equipment.The company handles its export sales through sales branches in Canada and Norway.The average tax book value of Portland's assets for the year was $300 million,of which $250 million generated U.S.source income and $50 million generated foreign source income.The average fair market value of Portland's assets was $500 million,of which $400 million generated U.S.source income and $100 million generated foreign source income.Portland's total interest expense for the year was $24 million.What is the minimum amount of interest expense that Portland can apportion against its foreign source gross income for foreign tax credit purposes,assuming the company can elect either apportionment method?

Deductible interest expense incurred by a U.S.corporation will always be treated as a U.S.source deduction.

The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S.source income.

Amy is a U.S.citizen.During the year she earned income from an investment in a French company.Amy will be subject to U.S.taxation on her income under the principle of source-based taxation.

Which statement best describes the U.S.framework for determining if an individual who is not a U.S.citizen will be treated as a resident alien for U.S.tax purposes?

Manchester Corporation,a U.S.corporation,incurred $100,000 of interest expense during 2017.Manchester manufactures inventory that is sold within the United States and abroad.The total tax book value and fair market value of its U.S.production assets is $20,000,000 and $50,000,000,respectively.The total tax book value and fair market value of its foreign production assets is $5,000,000 and $10,000,000,respectively.What is the minimum amount of interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes,assuming this is the first year the company makes this computation?

Which of the following foreign taxes are not creditable for U.S.tax purposes?

Philippe is a French citizen.During 2017 he spent 150 days in the United States on business.Because Philippe does not spend 183 days in the United States in 2017,he will not under any circumstances be treated as a resident alien for U.S.tax purposes.