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Exam 9: Taxation of International Transactions

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Question 31

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WorldCo, a foreign corporation not engaged in a U.S. trade or business, receives $50,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 78% of its income from foreign sources. How much of WorldCo's interest income is U.S. source?

A) $0
B) $11,000
C) $39,000
D) $50,000

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

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Question 32

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Purchase of inventory from a U.S. parent followed by which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia?

A) Sale to anyone outside Fredonia.
B) Sale to anyone inside Fredonia.
C) Sale to a related party outside Fredonia.
D) Sale to a nonrelated party outside Fredonia.

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

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Question 33

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During year 4, Josita, an NRA, receives interest income of $50,000 from Talmadge, Inc., an unrelated U.S. corporation. Considering the following facts related to Talmadge's operations, what is the sourcing of the interest income received by Josita? $\begin{array}{lrcc}&\text { U.S.-source } & \text { Active Foreign } & \text { Total Gross } \\\text { Year } & \text { Income } & \text { Business Income } & \text { income } \\\text { Year 1 } & \$ 200,000 & \$ 500,000 & \$ 700,000 \\\text { Year 2 } & 50,000 & 950,000 & 1,000,000 \\\text { Year 3 } & \underline{100,000} & 900,000 & 1,000,000\\\text { Totals }& \$ 350,000&\$ 2,350,000 & \$ 2,700,000\\\text { Year } 4 & \$ 150,000 & \$ 950,000 & \$ 1,100,000\end{array}$

GlobalCo, a foreign corporation not engaged in a U.S. trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 24% of its income from foreign sources. How much of GlobalCo's interest income is U.S. source?

OutCo, a controlled foreign corporation in Meena located outside the United States) , earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies. All of the dividend payors are located in Meena. OutCo's Subpart F income for the year is:

Without the foreign tax credit, double taxation would result when:

The United States has in force income tax treaties with about 70 countries.

During the current year, USACo a domestic corporation) sold equipment to FrenchCo, a non-U.S. corporation, for $350,000 with title passing to the buyer in France. USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment, all of which were allocated to U.S.-source income. USACo's adjusted basis in the equipment is $20,000 on the date of sale. What is the sourcing of the $330,000 gain on the sale of this equipment?

Jokerz, a CFC of a U.S. parent, generated $80,000 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 $0 in the first year tax deferral rules apply) and $50,000 in the second year.

Zhang, an NRA who is not a resident of a treaty country, receives taxable dividends of $50,000 from U.S. corporations. Zhang does not conduct a U.S. trade or business. Zhang's dividends are subject to withholding by the payor of:

Mitch, an NRA, sells a building in Omaha for $1 million. His basis in the building is zero for both regular tax and AMT purposes. Mitch has no other contact with the United States other than the ownership of the building. How much Federal income tax is due from Mitch on the sale?

Olaf, a citizen of Norway with no trade or business activities in the United States, sells at a gain 200 shares of MicroShift, Inc., a U.S. company. The sale takes place through Olaf's broker in Oslo. How is this gain treated for U.S. tax purposes?

Income tax treaties provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S. statutory law.

PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.

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

Which of the following is not a U.S. person?

RainCo, a U.S. corporation, owns a number of patents related to designing umbrellas. RainCo licenses these patents to unrelated parties. TexCo, a domestic corporation, paid RainCo $100,000 in royalties related to these licenses. TexCo uses the patent information in its manufacturing process in its Canadian plant. IrishCo, an Irish corporation, paid RainCo $25,000 in royalties related to the licenses. IrishCo uses the patent information in its manufacturing process in its Michigan manufacturing plant. How much U.S.-source royalty income did RainCo earn from these licenses?

Which of the following statements is false in regard to the U.S. income tax treaty program?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A non-U.S. subsidiary whose income may be taxed to the U.S. parent before repatriation.

When a business taxpayer "goes international," the first step usually is to create an overseas branch sales office.