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Exam 9: Taxation of International Transactions

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Question 71

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ForCo, a foreign corporation not engaged in a U.S. trade or business, recognizes a $3 million gain from the sale of land located in the United States. The amount realized on the sale was $50 million. Absent any exceptions, what is the required withholding amount on the part of the purchaser of this land?

A) $0
B) $300,000
C) $3 million
D) $5 million

E) A) and C)
F) C) and D)

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Question 72

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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. -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

A) Foreign base company income
B) Foreign personal holding company income
C) Controlled foreign corporation
D) U.S. shareholder
E) Previously taxed income
F) More than 10 percent
G) More than 50 percent
H) More than 80 percent

I) All of the above
J) G) and H)

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Question 73

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Which of the following statements regarding the taxation of U.S. real property gains recognized by non-U.S. persons not engaged in a U.S. trade or business is false? Gains from the disposition of U.S. real property are:

Columbia, Inc., a U.S. corporation, receives a $150,000 cash dividend from Starke, Ltd. Columbia owns 15% of Starke. Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P. What is Columbia's foreign tax credit related to the Starke dividend?

The § 367 cross-border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income, e.g. §§ 351 and 368. What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.

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.

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.-source?

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

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.

OutCo, a controlled foreign corporation in Meena (located outside the U.S.) , 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:

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Portfolio income treated as Subpart F income.

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

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -A deemed paid foreign tax credit is included in gross income.

Dividends received from a domestic corporation are totally U.S. source:

Britta, Inc., a U.S. corporation, reports foreign-source income and pays foreign taxes as follows. $\begin{array} { l r r } & \text { Income } & \text { Taxes } \\\text { Passive category } & \$ 200,000 & \$ 10,000 \\\text { General limitati on category } & 800,000 & 350,000\end{array}$ 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?

Match the definition with the correct term. -Activity that creates the potential for effectively connected income.

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?

Unused foreign tax credits are carried back two years and then forward 20 years.

Serena, a nonresident alien, is employed by GlobalCo, a non-U.S. corporation. Serena works in the United States for 3 days during the year, receiving a gross salary of $2,500 for this period. GlobalCo is not engaged in a U.S. trade or business. Under the "commercial traveler" exception, the $2,500 is not classified as U.S.-source income.

Match the definition with the correct term. -Bilateral agreement between two countries related to tax issues.