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Exam 9: Taxation of International Transactions

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Question 41

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Which of the following statements regarding the U.S. taxation of foreign persons is true?

A) A foreign person's effectively connected income is subject to U.S. income taxation.
B) A foreign person's effectively connected income is tax free unless it is portfolio income.
C) A foreign person may earn income from U.S. real property without incurring any U.S. income tax.
D) A foreign person must spend at least 183 days in the United States before any effectively connected income is subject to U.S. taxation.

E) All of the above
F) None of the above

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Question 42

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Unused foreign tax credits are carried back one year and then forward 10 years.

A) True
B) False

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Question 43

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Twelve unrelated U.S. persons own a foreign corporation equally. The foreign corporation is a CFC.

BrazilCo, Inc., a foreign corporation with a U.S. trade or business, has U.S.-source income as follows. Determine BrazilCo's total U.S. tax liability for the year assuming a 35% corporate rate and no tax treaty. Assume BrazilCo leaves its U.S. branch profits invested in the United States and does not otherwise repatriate any of its U.S. assets during the year.

A U.S. taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect) paid or accrued.

Jokerz, a CFC of a U.S. parent, generated $80,000 of Subpart F foreign base company services income in its first year of operations. The next year, Jokerz distributes $50,000 cash to the parent, from those service profits. The parent is taxed on $80,000 in the first year and $50,000 in the second year.

Lang, an NRA who was not a resident of a treaty country, receives taxable dividends of $50,000 from U.S. corporations. Lang does not conduct a U.S. trade or business. Lang's dividends are taxed by the United States through withholding by the payor of:

Interest paid to an unrelated party by a domestic corporation that historically earns 75% of its gross income each year from the conduct of an active trade or business outside the United States is foreign-source income.

The following persons own Schlecht Corporation, a foreign corporation. None of the shareholders are related. Subpart F income for the tax year is $300,000. No distributions are made. Which of the following statements is correct?

Peanut, Inc., a domestic corporation, receives $500,000 of foreign-source interest income on which foreign taxes of $5,000 are withheld. Its worldwide taxable income is $900,000, and U.S. tax liability before FTC is $315,000. What is Peanut's foreign tax credit?

A tax haven often is:

Which of the following is not a specific separate income "basket" for purposes of the foreign tax credit limitation calculation?

Given the following information, determine if FanCo, a foreign corporation, is a CFC.

Match the definition with the correct term.

Which of the following statements regarding a foreign person's U.S. tax consequences is true?

U.S. individuals who receive dividends from foreign corporations may claim the deemed-paid foreign tax credit related to such dividends.

Kilps, a U.S. corporation, receives a $200,000 dividend from a 20% owned foreign corporation. The deemed-paid taxes attributable to this dividend are $40,000 and foreign taxes withheld on remittance of the dividend are $30,000. Kilps's U.S. tax liability before the FTC is $350,000, the gross dividend income is $240,000, and Kilps's worldwide taxable income is $1 million. Kilps's foreign tax credit for the taxable year is:

Chang, an NRA, is employed by Fisher, Inc., a foreign corporation. In November, Chang spends 12 days in the United States performing consulting services for Fisher's U.S. branch. She earns $5,000 per month. A month includes 20 workdays.

Abbott, Inc., a domestic corporation, reports worldwide taxable income of $8 million, including a $900,000 dividend from ForCo, a wholly-owned foreign corporation. ForCo's post-1986 undistributed E & P are $18 million and it has paid $12 million of foreign income taxes attributable to these earnings. What is Abbott's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

Dividends received from Leprechaun, Ltd., an Irish corporation that earns 40% of its income from U.S. business activities, are 40% U.S.-source income.