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tax problems

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Question;1.Hans, a citizen and resident of;Argentina, is a retired bank executive. Hans does not hold a green card. At the;start of Year 1, Hans paid $2.5 million for a 20-unit apartment complex located;in the suburbs of Washington, D.C. Hans does not actively manage the building;but rather leases it to an unrelated property management company that subleases;the building to the tenants. During Year 1, Hans had rental income of $300,000;and operating expenses (depreciation, interest, insurance, etc.) of $220,000.;On the advice of his accountant, Hans made a Code Sec. 871(d) election in Year;1. At the start of Year 2, Hans sold the building for $350,000. Hans? adjusted;basis in the building at that time was $290,000.;What are the U.S. tax consequences of Hans? U.S. activities?;2.USAco, a domestic;corporation, is a wholly-owned subsidiary of FORco, a foreign corporation.;USAco?s only assets are cash of $200,000, accounts receivable of $200,000 and;its U.S. manufacturing plant worth $500,000. USAco has no liabilities. FORco;sells USAco to an independent U.S. buyer.;Is FORco?s sale of USAco subject to withholding under FIRPTA?;Explain.;Would your answer change if USAco had a liability of $300,000 in;the form of a mortgage on the U.S. manufacturing plant?;4. Wheelco, a foreign corporation;manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in;the United States through Wheely, a wholly-owned U.S. marketing subsidiary that;derives all of its income from U.S. business operations. Wheelco also has a;creditor interest in Wheely, such that Wheely?s debt to equity ratio is 3 to 1;and Wheely makes annual interest payments of $60 million to Wheelco. The;results from Wheely?s first year of operations are as follows;Sales.............................................................................................;$180 million;Interest income...............................................................................;$6 million;Interest expense (paid to;Wheelco).................................................................................................;$6 million;Depreciation;expense.....................................................................;($30 million);Other operating;expenses...............................................................;($81 million);Pre-tax income.............................................................................;$15 million;Assume the U.S.;corporate tax rate is 35%, and that the applicable tax treaty exempts Wheelco?s;interest income from U.S. withholding tax. Compute Wheely?s interest expense;deduction.

 

Paper#42031 | Written in 18-Jul-2015

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