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C:16-17 During the current year, Manuel, a nonresi...




C:16-17 During the current year, Manuel, a nonresident alien, conducts a U.S. business. He earns $100,000 in sales commissions and $25,000 of interest income. What factor(s) do U.S. taxing authorities consider to determine whether the interest is investment income not subject to U.S. taxation or business income subject to U.S. taxation? C:16-39 Translation of Foreign Tax Payments. Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z. In Year 1, he reports 500,000 dubles of pretax profits. On June 1 of Year 2, he pays Country Z income taxes of 150,000 dubles for calendar Year 1. Duble-U.S. dollar exchange rates on various dates in Year 1 and Year 2 are as follows: December 31, Year 1 4.00 dubles = $1 (U.S.) Year 1 average 3.75 dubles = $1 (U.S.) June 1, Year 2 4.25 dubles = $1 (U.S.) a. What is the U.S. dollar amount of Arnie?s foreign tax credit? In what year can Arnie claim the credit? b. How would your answer to Part a change if Arnie elected to accrue his foreign income taxes on December 31 of Year 1, and filed his Year 1 U.S. income tax return on April 15 of Year 2? c. What adjustment to the credit claimed in Part b would Arnie have to make when he pays his Country Z taxes on June 1 of Year 2? C:16-41 Foreign Tax Credit Limitation. Tucson, a U.S. corporation organized in Year 1, reports the following items for a three-year period. Year 1 Year 2 Year 3 Foreign tax accrual $ 100,000 $ 120,000 $ 180,000 Foreign source taxable income 400,000 300,000 500,000 Worldwide taxable income 1,000,000 1,000,000 1,000,000 The foreign source and worldwide taxable income items are determined under U.S. law. a. What is Tucson?s foreign tax credit limitation for each of the three years (assume a 34% U.S. corporate tax rate and that income from all foreign activities fall into a single basket)? b. How are Tucson?s excess foreign tax credits (if any) treated? Do any carryovers remain after Year 3? c. How would your answers to Parts a and b change if the IRS determines that $100,000 of expenses allocable to U.S.-source income should have been allocable to foreign source income? d. What measures should Tucson consider if it expects its current excess foreign tax credit position to persist in the long-run? C:16-44 Foreign-Earned Income Exclusion. Dillon, a U.S. citizen, resides in Country K for all of 2010. Dillon is married, files a joint return and claims two personal exemptions. The following items pertain to his 2010 activities: Salary and allowances (other than for housing)a $175,000 Housing allowance 28,000 Employment-related expensesb 7,500 Housing costs 30,000 Other itemized deductions 4,000 Country K income taxes 12,000 a) All of Dillon?s salary and allowances are attributable to services performed in Country K. b) Dillon claims the employment-related expenses as itemized deductions. What is Dillon?s net U.S. tax liability for 2010 (assume that Dillon excludes his earned income and housing cost amount)?


Paper#4374 | Written in 18-Jul-2015

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