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Exam 9: Taxation of International Transactions

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Question 61

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Wood, a U.S. corporation, owns Holz, a German corporation. Wood receives a dividend (non-Subpart F income) from Holz of 75,000€. The average exchange rate for the year is $1US: 0.6€, and the exchange rate on the date of the dividend distribution is $1US: 0.80€. Wood's exchange gain or loss is:

A) $15,000 loss.
B) $15,000 gain.
C) $75,000 gain.
D) $0. There is no exchange gain or loss on a dividend distribution.

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

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Question 62

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Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -Maximum years for a foreign tax credit carryback.

A) Indirect credit
B) Direct credit
C) One
D) Two
E) Ten
F) Twenty
G) Gross-up (§ 78)
H) Overall foreign loss

I) E) and G)
J) G) and H)

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Question 63

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Dark, Inc., a U.S. corporation, operates Dunkel, an unincorporated branch manufacturing operation in Germany. Dark reports $100,000 of taxable income from Dunkel on its U.S. tax return, along with $400,000 of taxable income from its U.S. operations. Dark paid $40,000 in German income taxes related to the $100,000 of Dunkel income. Assuming a U.S. tax rate of 35%, what is Dark's U.S. tax liability after any allowable foreign tax credits?

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.

Twenty unrelated U.S. persons equally own all of the stock of Quigley, a foreign corporation. Quigley is a CFC.

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

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) :

Which of the following statements regarding the sourcing of gross income is true?

SunCo, a U.S. corporation, owns a number of patents related to designing sunglasses. SunCo licenses these patents to unrelated parties. SpainCo, a Spanish corporation, paid SunCo $78,000 in royalties related to these licenses. SpainCo uses the patent information in its manufacturing process in its Texas plant. WiscCo, a domestic corporation, paid SunCo $32,000 in royalties related to the licenses. WiscCo uses the patent information in its manufacturing process in its Germany manufacturing plant. How much U.S.-source royalty income did SunCo earn from these licenses?

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.

AirCo, a domestic corporation, purchases inventory for resale from unrelated distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States. What is the source of AirCo's inventory sales income?

During the current year, USACo (a domestic corporation) sold equipment to FrenchCo, a foreign 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 source of the $330,000 gain on the sale of this equipment?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once -A net loss in all foreign tax credit limitation baskets.

Match the definition with the correct term -A non-U.S. citizen who holds a "green card."

Match the definition with the correct term -A country with very low or no income tax.

Which of the following statements is true, concerning the sourcing of income from inventory produced by the taxpayer in the U.S. and sold outside the U.S.?

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

Quest is organized and operates in the U.K. Its U.S. effectively connected earnings for the taxable year are $900,000 and its net U.S. equity has increased by $40,000. Quest's dividend equivalent amount for the tax year is $860,000.

Which of the following statements regarding foreign persons not engaged in a U.S. trade or business is true?

With respect to income generated by non-U.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.