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




Question;39. LO.5 Weather, Inc., a domestic corporation, operates in both Fredonia and the UnitedStates. This year, the business generated taxable income of $600,000 from foreign sources and $900,000 from U.S. sources. All of Weather?s foreign-source income is in the general limitation basket. Weather?s total worldwide taxable income is $1.5 million.Weather pays Fredonia taxes of $228,000. Assume a 34% U.S. income tax rate. What isWeather?s FTC for the tax year?40. LO.5 Blunt, Inc., a U.S. corporation, earned $600,000 in total taxable income, including $80,000 in foreign-source taxable income from its German branch?s manufacturing operations and $30,000 in foreign-source taxable income from its Swiss branch?s engineering services operations. Blunt paid $32,000 in German income taxes and $1,800 inSwiss income taxes. Compute Blunt?s U.S. tax liability after any available FTCs. Blunt?s marginal U.S. tax rate is 34%.41. LO.5 Dunne, Inc., a U.S. corporation, earned $500,000 in total taxable income, including $50,000 in foreign-source taxable income from its branch manufacturing operations in Brazil and $20,000 in foreign-source income from interest earned on bonds issued byDutch corporations. Dunne paid $25,000 in Brazilian income taxes and $3,000 in Dutch income taxes. Compute Dunne?s U.S. tax liability after any available FTCs. Assume that the U.S. tax rate is 34%.42. LO.5 ABC, Inc., a domestic corporation, has $50 million of taxable income, including $15 million of general limitation foreign-source taxable income, on which ABC paid $5 million in foreign income taxes. The U.S. tax rate is 35%. What is ABC?s foreign tax credit?43. LO.5 Mary, a U.S. citizen, is the sole shareholder of CanCo, a Canadian corporation.During its first year of operations, CanCo earns $14 million of foreign-source taxable income, pays $6 million of Canadian income taxes, and distributes a $2 million dividend to Mary. Can Mary claim a deemed-paid (indirect) FTC on her Form 1040 with respect to receipt of the dividend distribution from CanCo? Why or why not?44. LO.5 Elmwood, Inc., a domestic corporation, owns 15% of Correy, Ltd., a Hong Kong corporation. The remaining 85% of Correy is owned by Fortune Enterprises, a Canadian corporation. At the end of the current year, Correy has $400,000 in undistributed E & P and $200,000 in foreign taxes related to this E & P.On the last day of the year, Correy pays a $40,000 dividend to Elmwood. Elmwood?s taxable income before the dividend is $200,000. What is Elmwood?s tax liability after consideration of the dividend and any allowed FTC, assuming a 34%U.S. tax rate?45. LO.5 Warwick, Inc., a U.S. corporation, owns 100% of NewGrass, Ltd., a foreign corporation.NewGrass earns only general limitation income. During the current year, New-Grass paid Warwick a $10,000 dividend. The deemed-paid foreign tax credit associated with this dividend is $3,000. The foreign jurisdiction requires a withholding tax of 10%, so Warwick received only $9,000 in cash as a result of the dividend. What is Warwick?s total U.S. gross income reported as a result of the cash dividend?46. LO.5 For which of the following foreign income inclusions is a U.S. corporation potentially allowed an indirect FTC under ? 902?a. Interest income from a 5% owned foreign corporation.b. Interest income from a 60% owned foreign corporation.c. Dividend income from a 5% owned foreign corporation.d. Dividend income from a 60% owned foreign corporation.47. LO.5 Night, Inc., a domestic corporation, earned $300,000 from foreign manufacturing activities on which it paid $90,000 of foreign income taxes. Night?s foreign sales income is taxed at a 50%foreign tax rate. What amount of foreign sales income can Night earn without generating any excess FTCs for the current year? Assume a 34%U.S. tax rate.48. LO.4, 5 Partin, Inc., a foreign subsidiary of Jones, Inc., a U.S. corporation, has pretax income of 200,000 euros for 2014. Partin accrues 60,000 euros in foreign taxes on this income. The average exchange rate for the tax year to which the taxes relate is 1.35?:$1.None of the income is Subpart F income. If the net earnings of 140,000 euros are distributed when the exchange rate is 1.25?:$1, what are the deemed-paid taxes available toJones? Assume that 2014 is Partin?s first year of operation.49. LO.5 Collins, Inc., a domestic corporation, operates a manufacturing branch in Singapore.During the current year, the manufacturing branch produces a loss of $300,000. Collins also earns interest income from investments in Europe, where it earns $800,000 in passive income. Collins paid no foreign income taxes related to the Singapore branch, but it paid $64,000 in foreign income taxes related to the passive income. Assuming that Collins pays U.S. taxes at the 34%rate, what is Collins?s allowable FTC for the current year?50. LO.5 Money, Inc., a U.S. corporation, has $500,000 to invest overseas. For U.S. tax purposes, any additional gross income earned by Money will be taxed at 34%. Two possibilities for investment are:a. Invest the $500,000 in common stock of Exco (a foreign corporation). Exco common stock pays a dividend of $3 per share each year. The $500,000 would purchase 10,000 shares (or 10%) of Exco?s only class of stock (voting common). Exco expects to earn $10 million before taxes for the year and to be taxed at a flat rate of 40%. Its currentE & P before taxes is estimated to be $9.4 million. Exco?s government does not withhold on dividends paid to foreign investors.b. Invest the $500,000 in Exco bonds that pay interest at 7% per year. Assume that the bonds will be acquired at par, or face, value. Exco?s government withholds 25% on interest paid to foreign investors.Analyze these two investment opportunities, and determine which would give Money the better return after taxes. Make sure you consider the effect of the FTC. Write a letter to Money?s CFO, Jeffrey Howard, advising the corporation of your findings. Money?s address is 9201 West South Street, Woodstock, IL 60098.51. LO.2, 6 IrishCo, a manufacturing corporation resident in Ireland, distributes products through a U.S. office. Current-year taxable income from such sales in the United States is $12 million. IrishCo?s U.S. office deposits working capital funds in short-term certificates of deposit with U.S. banks. Current-year interest income from these deposits is $150,000.IrishCo also invests in U.S. securities traded on the New York Stock Exchange. This investing is done by the home office. For the current year, IrishCo records realized capital gains of $300,000 and dividend income of $50,000 from these stock investments. ComputeIrishCo?s U.S. tax liability, assuming that the U.S.-Ireland income tax treaty reduces withholding on dividends to 15% and on interest to 5%. Assume a 34%U.S. tax rate.52. LO.6 Clario, S.A., a Peruvian corporation, manufactures furniture in Peru. It sells the furniture to independent distributors in the United States. Because title to the furniture passes to the purchasers in the United States, Clario reports $2 million in U.S.-source income.Clario has no employees or operations in the United States related to its furniture business.As a separate line of business, Clario buys and sells antique toys. Clario has a single employee operating a booth on weekends at a flea market in Waldo, Florida. The antique toy business generated $85,000 in net profits from U.S. sources during the current year.What is Clario?s effectively connected income for the current year?53. LO.6 Trace, Ltd., a foreign corporation, operates a trade or business in the United States. Trace?s U.S.-source income effectively connected with this trade or business is $800,000 for the current year. Trace?s current-year E & P is $600,000. Trace?s net U.S. equity was $8.2 million at the beginning of the year and $8.6 million at year-end. Trace is a resident in a country that has no income tax treaty with the United States. Prepare a letter to Tanner Martin, Trace?s Tax VP, reporting Trace?s branch profits tax liability for the current year, along with at least one planning idea for reducing the branch profits tax. Trace uses the following address for its U.S. affairs: 9148 Church Street, Marietta, GA 30060.54. LO.6 Martinho is a citizen of Brazil and lives there year-round. He has invested in a plot of Illinois farmland with a tax basis to him of $1 million. Martinho has no other business or investment activities in the United States. He is not subject to the alternative minimum tax. Upon sale of the land for $1.5 million to Emma, an Illinois resident, what are the Federal income tax consequences to Martinho?55. LO.6 Continue with the facts of Problem 54. What are the Federal income tax withholding requirements with respect to Martinho?s sale? Who pays the withheld amount to the U.S. Treasury?56. LO.6 John McPherson is single, an attorney, and a U.S. citizen. He recently attended a seminar where he learned he could give up his U.S. citizenship, move to Bermuda (where he would pay no income tax), and operate his law practice long distance via the Internet with no U.S. tax consequences. Write a letter informing John of the tax consequences of his proposed actions. His address is 1005 NE 10th Street, Gainesville, GA 32612.


Paper#38714 | Written in 18-Jul-2015

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