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tax problems - questin and answer,.,. ch 25.




Question;1. LO.1 ?U.S. persons are taxed on their worldwide income.? Explain.2. LO.1, 5 Liang, a U.S. citizen, owns 100% of ForCo, a foreign corporation not engaged in a U.S. trade or business. Is Liang subject to any U.S. income tax on her dealings with ForCo? Explain.3. LO.2 Kelly, a U.S. citizen, earns interest income that is sourced in Germany. How could a U.S. tax treaty with Germany reduce Kelly?s taxes on the interest?4. LO.3 The Midori Bank, not a U.S. person, paid a dividend this year to Rhoda, a U.S. citizen. What is the proper sourcing of the dividend income? Be specific.5. LO.3 Write a memo for the tax research file outlining the issues that arise when attempting to source income that is earned from Internet-based activities.6. LO.3 ?The IRS can use ? 482 to overturn all of the international tax planning that our company is doing.? Explain.7. LO.4 Weinke is a business organized in Austria, where the local currency is the euro.Nevertheless, Weinke?s U.S. branch uses the U.S. dollar as its functional currency. How can this be?8. LO.4 Your client April asks you about an article she read in a professional journal, titled, ?How Many QBUs Do You Have?? Explain to April the definition of a qualified business unit (QBU), whether they all use the same functional currency, and how manyQBUs a global business such as April?s might have.9. LO.5 Randall operates his distribution business in several countries. He wants to move some equipment to a new office in South Africa. This equipment includes assets with a large acquisition price and accumulated MACRS depreciation. The assets to be transferred would generate a $1 million realized gain if sold. Advise Randall on the tax effects of his proposed asset transfer.10. LO.5 Joy Marcus owns several income-producing assets, including a stock portfolio and a small services proprietorship. She wants to start up a new corporation in the country Molto, where the income tax rates are about one-third of those in the United States, and transfer all of her assets and operations there.How tax-effective is Joy?s plan in shifting the income from her activities when they are placed in the Molto corporation? Write a memo for the tax research file highlighting the Federal income tax rules that apply.11. LO.5 Five unrelated U.S. individuals own all of the shares of Popping, a corporation organized in the United States but operating fully in the country Vivace. Mariam, one of the shareholders, asks you whether the income from Popping will be taxed to her immediately as earned, as she believes the entity is classified as ?a controlled foreign company (CFC).? Explain how the Federal income tax law applies to the profits earned by Popping.Use the correct Federal income tax terminology in your comments.12. LO.5 Joanna owns 5% of Axel, a foreign corporation. Joanna?s son, Fred, is considering acquiring 15% of Axel from an NRA. The remainder of Axel is owned 27% by unrelated U.S. persons and 53% by unrelated NRAs. Currently, Fred operates (as a sole proprietorship) a manufacturing business that sells goods to Axel for resale outside the United States and outside Axel?s country of residence.Joanna is not concerned about the concentration of investment because she expects to sell her stock in Axel in three years at a significant capital gain. Are there tax issues that Joanna and Fred, both U.S. citizens, need to address? Explain.13. LO.5 Linker is a corporate entity organized in France. It is owned equally by 100 U.S. shareholders. The shareholders are not related to each other, they purchased the shares from a broker. Is Linker a CFC? Explain.14. LO.5 QuinnCo could not claim all of the income taxes it paid to Japan as a foreign tax credit (FTC) this year. What computational limit probably kept QuinnCo from taking its full FTC? Explain.15. LO.5 Klein, a domestic corporation, receives a $10,000 dividend from ForCo, a wholly owned foreign corporation. The deemed-paid FTC associated with this dividend is $3,000.What is the total gross income included in Klein?s tax return as a result of this dividend?16. LO.5 Molly, Inc., a domestic corporation, owns 15% of PJ, Inc., and 12% of Emma,Inc., both foreign corporations. Molly is paid gross dividends of $35,000 and $18,000 from PJ and Emma, respectively. PJ withheld and paid more than $10,500 in foreign taxes on the $35,000 dividend.PJ?s country of residence levies a 20% tax on dividends paid to nonresident corporations.However, the tax rate is increased to 30% if the recipient is a resident of a country that provides an FTC. Taxes of $3,600 are withheld on the dividend from Emma.What tax issues must be considered in determining the availability and amount of theFTC allowed to Molly, Inc.?17. LO.5 HiramCo operates a manufacturing business in both Mexico and Costa Rica, and it holds its investment portfolio in Sweden. How many foreign tax credit computations must HiramCo make? Be specific, and use the term basket in your answer.18. LO.6 Give a simple answer to Andre?s question: ?If I move to the United States, how will the Federal government tax my widget sales and capital gains?? Andre will be living in New York City, where state and local taxes are very high. Ignore the effects of tax treaties in your answer.19. LO.3, 6 Sloop, Inc., a foreign corporation, sells wireless devices in several countries, including the United States. In fact, currently, 25% of Sloop?s sales income is sourced in the United States (through branches in New York and Chicago). Sloop is considering opening additional branches in San Diego and Denver to increase U.S. sales. What tax issues must Sloop consider before making this move? 20. LO.6 Write a memo for the tax research file on the difference between ?inbound? and ?outbound? activities in the context of U.S. taxation of international income.21. LO.1, 3, 5 Draft a short speech that you will give to your university?s Business Club.The title of your talk is ?What Is Worldwide Taxation and How Can I Avoid It??


Paper#38594 | Written in 18-Jul-2015

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