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

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Question;22. LO.4, 5 BlueCo, a domestic corporation, incorporates GreenCo, a new wholly owned entity in Germany. Under both German and U.S. legal principles, this entity is a corporation.BlueCo faces a 35%U.S. tax rate.GreenCo earns $1,500,000 in net profits from its German activities and makes no dividend distributions to BlueCo. How much U.S. income tax will BlueCo pay for the current year as a result of GreenCo?s earnings, assuming no deemed dividend under Subpart F? Ignore any FTC implications.23. LO.3 Emma, a U.S. resident, received the following income items for the current tax year. Identify the source of each income item as either U.S. or foreign.a. $600 interest from a savings account at a Florida bank.b. $5,000 dividend from U.S. Flower Company, a U.S. corporation, that operates solely in the eastern United States.c. $7,000 dividend from Stern Corporation, aU.S. corporation that had total gross income of $4 million from the active conduct of a foreign trade or business for the immediately preceding three tax years. Stern?s worldwide gross income for the same period was $5 million.d. $10,000 dividend from International Consolidated, Inc., a foreign corporation that had gross income of $4 million effectively connected with the conduct of a U.S. trade or business for the immediately preceding three tax years. International?s worldwide gross income for the same period was $12 million.e. $5,000 interest on Warren Corporation bonds. Warren is a U.S. corporation that derived $6 million of its gross income for the immediately preceding three tax years from operation of an active foreign business. Warren?s worldwide gross income for this same period was $7.2 million.24. LO.3 Gloria Martinez, an NRA, is a professional golfer. She played in seven tournaments in the United States in the current year and earned $250,000 in prizes from these tournaments. She deposited the winnings in a bank account she opened in Mexico City after her first tournament win.Gloria played a total of 30 tournaments for the year and earned $800,000 in total prize money. She spent 40 days in the United States, 60 days in England, 20 days in Scotland, and the rest of the time in South America. Write a letter to Gloria explaining how much U.S.-source income she will generate, if any, from her participation in these tournaments and whether any of her winnings are subject to U.S. taxation. Gloria?s address is AV Rio Branco, 149?4#, Rio de Janeiro, RJ 20180, Brazil.25. LO.3 Determine whether the source of income for the following sales is U.S. or foreign.a. Suarez, an NRA, sells stock in Home Depot, a U.S. corporation, through a broker in San Antonio.b. Chris sells stock in IBM, a U.S. corporation, to her brother, Rich. Both Chris andRich are NRAs, and the sale takes place outside the United States.c. Crows, Inc., sells inventory produced in the United States to customers in Europe.Title passes in the international waters of the Atlantic Ocean.d. Doubles, Inc., a U.S. corporation, manufactures equipment in Malaysia and sells the equipment to customers in the United States.26. LO.3 Chock, a U.S. corporation, purchases inventory for resale from distributors within the United States and resells this inventory at a $1 million profit to customers outside the United States. Title to the goods passes outside the United States. What is the sourcing of Chock?s inventory sales income?27. LO.3 Willa, a U.S. corporation, owns the rights to a patent related to a medical device.Willa licenses the rights to use the patent to IrishCo, which uses the patent in its manufacturing facility located in Ireland. What is the sourcing of the $1 million of royalty income received by Willa from IrishCo for the use of the patent?28. LO.3 US Co incurred $100,000 in interest expense for the current year. The tax book value of US Co?s assets generating foreign-source income is $5 million. The tax book value of USCo?s assets generating U.S.-source income is $45 million. How much of the interest expense is allocated and apportioned to foreign-source income?29. LO.3 Create, Inc., produces inventory in its foreign manufacturing plants for sale in the United States. Its foreign manufacturing assets have a tax book value of $5 million and a fair market value of $15 million. Its assets related to the sales activity have a tax book value of $2 million and a fair market value of $5 million. Create?s interest expense totaled $400,000 for the current year.a. What amount of Create?s interest expense is allocated and apportioned to foreignsource income using the tax book value method? Using the fair market method?b. If Create wants to maximize its FTC, which method should it use?30. LO.4 Honk, Inc., a U.S. corporation, purchases weight-lifting equipment for resale from HiDisu, a Japanese corporation, for 60 million yen. On the date of purchase,80 yen is equal to $1 U.S. (?80:$1). The purchase is made on December 15, 2013, with payment due in 90 days. Honk is a calendar year taxpayer. On December 31, 2013, the foreign exchange rate is?84:$1.On February 2, 2014, the invoice is paid when the exchange rate is?85:$1. What amount of foreign currency gain or loss, if any, must Honk recognize for 2013 as a result of this transaction? For 2014?31. LO.4 Flinch, Inc., a U.S. corporation, operates a manufacturing branch in Mexico and a sales branch in Canada. The Mexican branch uses the peso for all of its activities, and the Canadian branch uses the Canadian dollar for all of its activities. Write a letter toKaren Burns, Flinch?s tax director, explaining the number of foreign qualified business units the company will have from these activities. Flinch?s address is 840 Logan Avenue,Madison, WI 53705.32. LO.4 Juarez is a citizen and resident of the United States. He pays all of his living expenses in U.S. dollars. He operates an unincorporated trade or business, buying and selling rare books over the Internet to customers in Mexico. All income and expenses of the rare book business are in pesos. Explain to Juarez the number of qualified business units he has, and help him determine the related functional currency of the QBUs.33. LO.4, 5 Teal, Inc., a foreign corporation, pays a dividend to its shareholders on November30. Red, Inc., a U.S. corporation and 7% shareholder in Teal, receives a dividend of 10,000K (a foreign currency). Pertinent exchange rates are as follows:November 30.9K:$1Average for year.7K:$1December 31 2K:$1What is the dollar amount of the dividend received by Red, Inc.? Does Red, Inc., have a foreign exchange gain or loss on receipt of the dividend?34. LO.5 Packard, Inc., a domestic corporation, operates a branch in Mexico. Over the last10 years, this branch has generated $30 million in losses. For the last 3 years, however, the branch has been profitable and has earned enough income to entirely offset the prior losses. Most of the assets are fully depreciated, and a net gain would be recognized if the assets were sold.Packard?s CFO believes that Packard should incorporate the branch now so that this potential gain can be transferred to a foreign corporation, thereby avoiding U.S. tax and, as an added benefit, avoiding U.S. taxes on future income. Draft a memo to SamuelHenderson, the CFO, addressing the tax issues involved in the proposed transaction.35. LO.5 USCo owns 65% of the voting stock of LandCo, a Country X corporation. Terra, an unrelated Country Y corporation, owns the other 35% of LandCo. LandCo owns 100% of the voting stock of OceanCo, a Country Z corporation. Assuming that USCo is a U.S. shareholder, do LandCo and OceanCo meet the definition of a CFC? Explain.36. LO.5 Hart Enterprises, a U.S. corporation, owns 100% of OK, Ltd., an Irish corporation.OK?s gross income for the year is $10 million. Determine OK?s Subpart F income (before any expenses) from the transactions that it reported this year.a. OK received $600,000 from sales of products purchased from Hart and sold to customers outside Ireland.b. OK received $1 million from sales of products purchased from Hart and sold to customers in Ireland.c. OK received $400,000 from sales of products purchased from unrelated suppliers and sold to customers in Germany.d. OK purchased raw materials from Hart, used these materials to manufacture finished goods, and sold these goods to customers in Italy. OK earned $300,000 fromthese sales.e. OK received $100,000 for the performance of warranty services on behalf of Hart.These services were performed in Japan for customers located in Japan.f. OK received $50,000 in dividend income from investments in Canada and Mexico.37. LO.5 Round, Inc., a U.S. corporation, owns 80% of the only class of stock of Square,Inc., a CFC. Square is a CFC until October 1 of the current tax year (not a leap year).Round has held the stock since Square was organized and continues to hold it for the entire year. Round and Square are both calendar year taxpayers.Square?s Subpart F income for the tax year is $5 million, current E & P is $12.5 million, and no distributions have been made for the tax year. What amount, if any, mustRound include in gross income under Subpart F for the tax year?38. LO.5 Brandy, a U.S. corporation, operates a manufacturing branch in Chad, which does not have an income tax treaty with the United States. Brandy?s worldwide Federal taxable income is $30 million, so it is subject to a 35% marginal tax rate. Profits and taxes in Chad for the current year are summarized as follows. Compute Brandy?s foreign tax credit associated with its operations in Chad.Income ItemChad IncomeThis YearChad TaxRateChad TaxPaidManufacturing profits $2,500,000 20% $500,000Dividend 300,000 5% 15,000

 

Paper#38713 | Written in 18-Jul-2015

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