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Exam 13: The U.S. Taxation of Multinational Transactions

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Question 1

Multiple Choice

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Gwendolyn was physically present in the United States for 90 days in 2018, 180 days in 2017, and 30 days in 2016. Under the substantial presence test formula, how many days is Gwendolyn deemed physically present in the United States in 2018?

A) 300
B) 155
C) 150
D) 90

E) All of the above
F) C) and D)

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B

Question 2

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A rectangle with a triangle within it is a symbol used to represent what organizational form?

A) Partnership
B) Corporation
C) Hybrid entity treated as a branch for U.S. tax purposes
D) Hybrid entity treated as a partnership for U.S. tax purposes

E) A) and B)
F) B) and D)

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Question 3

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Cheyenne Corporation is a U.S. corporation engaged in the manufacture and sale of mining equipment. The company handles its export sales through sales branches in Canada and Mexico. The average tax book value of Cheyenne's assets for the year was $200 million, of which $100 million generated U.S. source income and $100 million generated foreign source income. Cheyenne's total interest expense for the year was $30 million. What amount of interest expense can Cheyenne apportion against its foreign source gross income for foreign tax credit purposes, assuming there is no limitation on the interest expense deduction?

All taxes paid to a foreign government by a U.S. individual are creditable on the individual's U.S. tax return.

Boca Corporation, a U.S. corporation, received a dividend of $800,000 from its 100 percent owned Swiss subsidiary. A five percent withholding tax ($40,000) was imposed on the dividend. What amount of taxable income does the dividend generate on Boca's U.S. tax return and what is the company's net U.S. tax, assuming the company has $200,000 of U.S. source taxable income and the FTC limitation is not binding?

Rainier Corporation, a U.S. corporation, manufactures and sells quidgets in the United States and Europe. Rainier conducts its operations in Europe through a German GmbH, which the company elects to treat as a branch for U.S. tax purposes. Rainier also licenses the rights to manufacture quidgets to an unrelated company in China. During the current year, Rainier paid the following foreign taxes, translated into U.S. dollars at the appropriate exchange rate: What amount of creditable foreign taxes does Rainier incur?

Jimmy Johnson, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. In June 2018, General Motors relocated Jimmy to its operations in Germany for the remainder of 2018. Jimmy was paid a salary of $250,000. As part of his compensation package for moving to Germany, Jimmy received a cost of living allowance of $30,000, which was paid to him only while he worked in Germany. Jimmy's salary was earned ratably over the twelve-month period. During 2018 Jimmy worked 260 days, 130 of which were in Germany and 130 of which were in the United States. How much of Jimmy's total compensation is treated as foreign source income for 2018?

Subpart F income earned by a CFC will always be treated as a deemed dividend to the CFC's U.S. shareholders in the year the subpart F income is earned.

Which of the following persons should not be treated as a "U.S. shareholder" of a controlled foreign corporation (CFC) for subpart F purposes?

A U.S. corporation can use hybrid entities to avoid the application of subpart F to cross border payments made between wholly owned entities outside the United States.

Guido was physically present in the United States for 150 days in 2018, 120 days in 2017, and 90 days in 2016. Under the substantial presence test formula, how many days is Guido deemed physically present in the United States in 2018?

Portsmouth Corporation, a British corporation, is a wholly owned subsidiary of Salem Corporation, a U.S. corporation. During the year, Portsmouth reported the following income: $250,000 interest income received from a loan to an unrelated French corporation. $100,000 dividend income received from a less than 1 percent owned unrelated Dutch corporation. $150,000 rent income from an unrelated British corporation on property Portsmouth actively manages. $500,000 gross profit from the sale of inventory manufactured by Portsmouth in Great Britain and sold to a 100 percent owned subsidiary in Germany. What amount of subpart F income does Portsmouth recognize in the current year?

Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?

Natsumi is a citizen and resident of Japan. She has a full-time job in Japan and has lived there with her family for the past 20 years. In 2016, Natsumi came to the United States on business and stayed for 240 days. She came to the United States again on business in 2017 and stayed for 120 days. In 2018 she came back to the United States on business and stayed for 120 days. Does Natsumi meet the U.S. statutory definition of a resident alien in 2018 under the substantial presence test?

Gouda, S.A., a Belgium corporation, received the following sources of income during 2018: $10,000 interest income from a loan to its 100 percent owned Dutch subsidiary $20,000 dividend income from its 100 percent owned U.S. subsidiary $30,000 royalty income from its Irish subsidiary for use of a trademark outside the United States $40,000 rent income from its Canadian subsidiary for use of a warehouse located in Wisconsin $5,000 capital gain from sale of stock in its 40 percent owned New Zealand joint venture. Title passed in New Zealand. What amount of U.S. source income does Gouda have in 2018?

Bismarck Corporation has a precredit U.S. tax of $210,000 on $1,000,000 of taxable income in 2018. Bismarck has $200,000 of foreign source taxable income characterized as foreign branch income and $50,000 of foreign source taxable income characterized as passive category income. Bismarck paid $80,000 of foreign income taxes on the foreign branch income and $10,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Bismarck use on its 2018 U.S. tax return and what is the amount of the carryforward, if any?

Hanover Corporation, a U.S. corporation, incurred $300,000 of interest expense during 2018. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value of its production assets is $20,000,000. The total tax book value of its foreign production assets is $5,000,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation and the interest expense is fully deductible?

The Canadian government imposes a withholding tax of 15 percent on a dividend paid by a Canadian corporation to a U.S. individual. The withholding tax will be creditable on the individual's U.S. tax return as an "in lieu of" tax.

Which of the following statements best describes the substantial presence test as it applies to determining if a non-U.S. citizen is a resident alien for U.S. tax purposes?

Santa Fe Corporation manufactured inventory in the United States and sold the inventory to customers in Mexico. Gross profit from the sale of the inventory was $200,000. Title to the inventory passed FOB: shipping point. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?