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Exam 24: The US Taxation of Multinational Transactions

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Question 51

True/False

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A non U.S. citizen with a green card will always be treated as a resident alien for U.S. tax purposes regardless of the number of days she spends in the United States during the current year.

A) True
B) False

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Question 52

Multiple Choice

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Which of the following tax or non-tax benefits does not arise when a U.S. corporation forms a hybrid entity in Germany through which to earn business profits in Germany and elects to have the entity treated as a branch for U.S. tax purposes?

A) Flow-through of losses from the German corporation to the tax return of the U.S. corporation.
B) Free transferability of the stock of the hybrid entity by the U.S. corporation.
C) Potential deferral of U.S. tax on income earned by the corporation.
D) Limited liability to the U.S. corporation for acts committed by the hybrid entity.

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

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Question 53

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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 ofinterest 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?

Giselle is a citizen and resident of Brazil, a country with which the United States does not have an income tax treaty. Giselle earned $24,000 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?

Janet Mothra, a U.S. citizen, is employed by Caterpillar Corporation, a U.S. corporation. In May2017, 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 for2017?

Madrid Corporation is a 100 percent owned Spanish subsidiary of DoubloonCorporation, a U.S. corporation. Madrid had post-1986 earnings and profits of€4,200,000 and post-1986 foreign taxes of $2,700,000. During the current year, Madrid paid a dividend of €2,100,000 to Doubloon. Assume an exchange rate of €1 = $1.50. Compute the tax consequences to Doubloon as a result of this dividend.

Emerald Corporation is a 100 percent owned Irish subsidiary of Shamrock, Inc., a U.S. corporation.Emerald had post-1986 earnings and profits of €2,625,000 and post-1986 foreign taxes of $525,000. During the current year, Emerald paid a dividend of €525,000 to Shamrock. The dividend wascharacterized as general category income for FTC purposes. The dividend was subject to awithholding tax of €26,250. Assume an exchange rate of €1 = $1.50. Shamrock reported U.S.taxable income of $1,000,000. Shamrock's U.S. tax rate is 34 percent. Compute Shamrock's net U.S. tax liability for the current year and excess FTC, if any.

Holmdel, Inc., a U.S. corporation, received the following sources of income during 2017:$10,000 interest income from a loan to its 100 percent owned Swiss subsidiary.$50,000 dividend income from its 100 percent owned French subsidiary.$100,000 royalty income from its Bermuda subsidiary for use of a trademark outside the United States.$25,000 rent income from its Canadian subsidiary for use of a warehouse located in New Jersey.$50,000 capital gain from sale of stock in its 40 percent owned Japanese joint venture. Title passed in Japan.What amount of foreign source income does Holmdel have in 2017?

Subpart F income earned by a CFC will always be treated as a deemed dividend to theCFC's U.S. shareholders in the year the subpart F income is earned.

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

Saginaw Steel Corporation has a precredit U.S. tax of $170,000 on $500,000 of taxable income in 2017. Saginaw has $200,000 of foreign source taxable income and paid$80,000 of income taxes to the German government on this income. All of the foreign source income is treated as general category income for foreign tax credit purposes. Saginaw's foreign tax credit on its 2017 tax return will be:

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

Natsumi is a citizen and resident of Japan. She has a full-time job in Japan and has lived there with her family for the past 20 years. In 2015, Natsumi came to the United States on business and stayed for 240 days. She came to the United States again on business in 2016 and stayed for 120 days. In2017 she came back to the United States on business and stayed for 120 days. Does Natsumi meet the U.S. statutory definition of a resident alien in 2017 under the substantial presence test?

Portland Corporation is a U.S. corporation engaged in the manufacture and sale of fishingequipment. 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. Theaverage 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 thatPortland can apportion against its foreign source gross income for foreign tax credit purposes, assuming the company can elect either apportionment method?

Nexus involves the criteria used by a government to assert its right to tax a person ortransaction within or without its borders.

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. Horton had post-1986 earnings and profits of C$2,400,000 andpost-1986 foreign taxes of $1,600,000. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. sourced taxable income of $2,000,000 before considering the dividend received from Horton Corporation. Cruller's U.S. taxrate is 34 percent. Compute the tax consequences to Cruller as a result of this dividend.

Reno Corporation, a U.S. corporation, reported total taxable income of $6,000,000 in 2017. Taxable income included $1,800,000 of foreign source taxable income from the company's branchoperations in Canada. All of the branch income is general category income. Reno paid Canadian income taxes of C$720,000 on its branch income. Compute Reno's net U.S. tax liability and any foreign tax credit carryover for 2017. Use a U.S. corporate tax rate of 34%. Assume an exchange rate of C$1 = $1.

All taxes paid to a foreign government by a U.S. corporation are creditable on the corporation's U.S. tax return.

Ypsi Corporation has a precredit U.S. tax of $780,000 on $2,000,000 of taxable income in 2017.Ypsi has $400,000 of foreign source taxable income characterized as general category income and$150,000 of foreign source taxable income characterized as passive category income. Ypsi paid$180,000 of foreign income taxes on the general category income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its2017 U.S. tax return and what is the amount of the FTC carryforward, if any?

Obispo, Inc., a U.S. corporation, received the following sources of income during 2017:$20,000 interest income from a loan to its 100 percent owned U.S. subsidiary.$30,000 dividend income from its 100 percent owned Canadian subsidiary.$50,000 royalty income from its Irish subsidiary for use of a trademark within the United States.$40,000 rent income from its Dutch subsidiary for use of a warehouse located in Belgium.$3,000 capital gain from sale of stock in its 40 percent owned Mexican joint venture. Title passed in the UniteStates.What amount of foreign source income does Obispo have in 2017?