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Exam 13: Multijurisdictional Taxation

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Question 31

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Britta,Inc.,a U.S.corporation,reports foreign-source income and pays foreign taxes as follows. $\begin{array}{ll}&\textbf{Income}&\textbf{Taxes}\\\text { Passive category } & \$ 200,000&\$ 10,000 \\\text { General limitation category } & 800,000& 350,000 \\\end{array}$ Britta's worldwide taxable income is $1,600,000 and U.S.taxes before FTC are $560,000 (assume a 35% tax rate).What is Britta's U.S.tax liability after the FTC?

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The FTC is computed separately for both ...

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Question 32

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Kunst,a U.S.corporation,generates $100,000 of foreign-source income in the general income basket and $40,000 of foreign-source income in the passive income basket.Kunst's worldwide taxable income is $1,200,000,and its U.S.tax liability before FTC is $420,000.Foreign taxes attributable to the general income basket are $60,000 and to the passive income are $4,000.What is Kunst's foreign tax credit for the tax year?

A) $64,000.
B) $39,000.
C) $35,000.
D) $4,000.

E) A) and B)
F) B) and C)

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Question 33

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Ramirez Corporation is subject to tax only in State A. Ramirez generated the following income and deductions. $\begin{array}{ll}\text { Federal taxable income } & \$ 500,000 \\\text { State A income tax expense } & 45,000 \\\text { Depreciation allowed for Federal tax puposes } & 300,000 \\\text { Depreciation allowed for state tax purposes } & 250,000\end{array}$ Federal taxable income is the starting point in computing A taxable income.State income taxes are not deductible for A tax purposes.Ramirez's A taxable income is:

Maxim,Inc.,a U.S.corporation,reports worldwide taxable income of $8 million,including a $900,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's undistributed E & P are $15 million and it has paid $6 million of foreign income taxes attributable to these earnings.What is Maxim's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state,such as entities with in-state headquarters.

A state can levy an income tax on a business only if the business was incorporated in the state.

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

The IRS can use § 482 reallocations to assure that transactions between related parties are properly reflected in a tax return.

Under P.L.86-272,the taxpayer is exempt from state taxes on income resulting from the mere solicitation of orders for the sale of stocks and bonds.

Freda was born and continues to live in Uruguay.She exports widgets to U.S.customers.The U.S.does not have in force an income tax treaty with Uruguay.Freda's net U.S.income from the widgets is subject to a flat 30% Federal income tax rate.

In allocating interest expense between U.S.and foreign sources,a taxpayer elects to use either the tax basis of the income-producing assets or their fair market values.

Cruz Corporation owns manufacturing facilities in States A,B,andC A uses a three-factor apportionment formula under which the sales,property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor,based solely on sales. Cruz's operations generated $1,000,000 of apportionable income,and its sales and payroll activity and average property owned in each of the three states is as follows. $\begin{array}{lcccc}&\textbf{State A} &\textbf{State B}&\textbf{State C}&\textbf{Totals}\\Sales & \$ 400,000 & \$800,000 & \$300,000 & \$1,500,000 \\Payroll & 100,000 & 150,000 & 50,000 & 300,000 \\Property & 200,000 & 200,000 & 200,000 & 600,000 \\\end{array}$ Cruz's apportionable income assigned to C is:

Helene Corporation owns manufacturing facilities in States A,B,andC A uses a three-factor apportionment formula under which the sales,property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor,based solely on sales. Helene's operations generated $1,000,000 of apportionable income,and its sales and payroll activity and average property owned in each of the three states is as follows. $\begin{array}{lcccc}&\textbf{State A} &\textbf{State B}&\textbf{State C}&\textbf{Totals}\\Sales & \$ 400,000 & \$800,000 & \$300,000 & \$1,500,000 \\Payroll & 100,000 & 150,000 & 50,000 & 300,000 \\Property & 200,000 & 200,000 & 200,000 & 600,000 \\\end{array}$ Helene's apportionable income assigned to A is:

Wellington,Inc.,a U.S.corporation,owns 30% of a CFC that has $50 million of earnings and profits for the current year.Included in that amount is $20 million of Subpart F income.Wellington has been a CFC for the entire year and makes no distributions in the current year.Wellington must include in gross income (before any § 78 gross-up) :

Kipp,a U.S.shareholder under the CFC provisions,owns 40% of a CFC.If the CFC's Subpart F income for the taxable year is $200,000,Kipp is taxed on receipt of a constructive dividend of $80,000.

USCo,a U.S.corporation,reports worldwide taxable income of $500,000,including a $100,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings.What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation) ?

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

Jaime received gross foreign-source dividend income of $250,000.Foreign taxes withheld on the dividend were $25,000.Jaime's total U.S.tax liability is $800,000 (the 35% marginal tax rate applies).Jaime's current year FTC is $87,500.

Discuss the primary purposes of income tax treaties.

Nico lives in California.She was born in Peru but holds a green card.Nico is a nonresident alien (NRA).