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Exam 13: The Us Taxation of Multinational Transactions

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Question 41

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Spartan Corporation, a U.S. company, manufactures widgets for sale in the United States and Europe. All manufacturing activities take place in the United States. During the current year, Spartan sold 100,000 widgets to European customers at a price of $5 each. Each widget costs $2 to produce. All of Spartan's production assets are located in the United States. Spartan ships its widgets FOB, place of destination. What amount of Spartan's gross profit is treated as coming from foreign sources?

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$300,000 gross profit is U.S. source and...

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Question 42

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Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?

A) Income that is characterized as effectively connected income is subject to net taxation while income that is characterized as fixed and determinable, annual or periodic income is subject to a withholding tax applied to gross income.
B) Income that is characterized as effectively connected income is subject to a withholding tax applied to gross income while income that is characterized as fixed and determinable, annual or periodic income is subject to net taxation.
C) All U.S. source income is subject to net taxation, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.
D) All U.S. source income is subject to a withholding tax applied to gross income, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.

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

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Question 43

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Which of the following statements best describes the substantial presence test as it applies to determining if a non-U.S. citizen is a resident alien for U.S. tax purposes?

Hanover Corporation, a U.S. corporation, incurred $300,000 of interest expense during the current year. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value of its production assets is $20,000,000. The total tax book value of its foreign production assets is $5,000,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming the interest expense is fully deductible?

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?

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

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

A Japanese corporation owned by 11 U.S. individuals cannot be treated as a controlled foreign corporation for U.S. tax purposes.

A rectangle with a triangle within it is a symbol used to represent what organizational form?

Which of the following exceptions could cause subpart F income to be excluded from the deemed dividend regime?

Which of the following is not a benefit derived from an income tax treaty between the United States and another country?

Ypsi Corporation has a precredit U.S. tax of $420,378 on $2,001,800 of taxable income in the current year. Ypsi has $418,000 of foreign source taxable income characterized as foreign branch income and $151,800 of foreign source taxable income characterized as passive category income. Ypsi paid $100,000 of foreign income taxes on the foreign branch income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its U.S. tax return and what is the amount of the FTC carryforward, if any? (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)

Hanover Corporation, a U.S. corporation, incurred $315,000 of interest expense during the current year. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value of its production assets is $20,500,000. The total tax book value of its foreign production assets is $5,250,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming the interest expense is fully deductible? (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)

A U.S. corporation reports its foreign tax credit computation on which tax form?

Janet Mothra, a U.S. citizen, is employed by Caterpillar Corporation, a U.S. corporation. In May 2020, Caterpillar relocated Janet to its operations in Spain for the remainder of 2020. 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 12-month period. During 2020 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 2020?

The United States generally taxes U.S. source fixed and determinable, annual or periodic income (FDAP) earned by non-U.S. persons by applying a withholding tax to the gross amount of income.

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

Saginaw Steel Corporation has a precredit U.S. tax of $123,000 on $518,000 of taxable income. Saginaw has $218,000 of foreign source taxable income and paid $78,000 of income taxes to the German government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Saginaw's foreign tax credit on its tax return will be: (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)

Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $51,000 of compensation while working within the United States. She worked 60 days in the United States and 180 days in Brazil. How much of her compensation earned in the United States will be subject to U.S. tax?

Polka Corporation is a 100 percent owned Polish subsidiary of Pierogi Incorporated, a U.S. corporation. During the current year, Polka paid a dividend of €525,000 to Pierogi. The dividend was subject to a withholding tax of €26,250. Assume an exchange rate of €1 = $1.50. Pierogi reported U.S. taxable income of $1,000,000. Compute Pierogi's net U.S. tax liability for the current year and excess FTC, if any.