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Question;919. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #1;GreenCo, a domestic corporation, earns $25 million of taxable income from U.S.;sources and $5 million of taxable income from foreign sources. What amount of;taxable income does GreenCo report on its U.S. tax return?;a.;$30 million.;b. $25 million.;c. $30 million less any tax paid on U.S.;income.;d. $25 million less any tax paid on the;foreign income.;920. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #2;Without the foreign tax credit, double taxation would result when;a.;The United States taxes the U.S.-source income of a U.S. resident.;b. The United States and a foreign;country both tax the foreign-source income of a U.S. resident.;c. A foreign country taxes the;foreign-source income of a nonresident alien.;d. Only the United States taxes the;foreign-source income of a U.S. resident (e.g., a treaty prevents foreign;taxation).;921. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #3;U.S. income tax treaties;a.;Provide rules by which multinational taxpayers avoid double taxation.;b. Provide for taxation exclusively by;the source country.;c. Provide that the country with the;highest tax rate will be allowed exclusive tax collection.;d. Provide for taxation exclusively by;the country of residence.;922. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #4;Which of the following statements is false;in regard to the U.S. income tax treaty program?;a.;There are over 50 income tax treaties between the U.S. and other countries.;b. Tax treaties generally provide for;primary taxing rights that require the other treaty partner to allow a credit;for the taxes paid on the twice-taxed income.;c. Residence of the taxpayer is an;important consideration in applying tax treaties, while the presence of a;permanent establishment is not.;d. None of the above statements is;false.;923. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #5;ForCo, a foreign corporation, receives interest income of $100,000 from USCo;an unrelated domestic corporation. USCo has historically earned 85% of its;income from foreign sources. What amount of ForCo?s interest income is U.S.;source?;a.;$100,000.;b. $28,000.;c. $18,000.;d. $0.;924. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #6;Dividends received from a domestic corporation are totally U.S. source;a.;If the corporation earns at least 80% of its gross income over the immediately;preceding three tax years from the active conduct of a U.S. trade or business.;b. Unless the corporation earns at least;80% of its gross income over the immediately preceding three tax years from the;active conduct of a foreign trade or business.;c. If the corporation earns at least 25%;of its gross income over the immediately preceding three tax years from the;active conduct of a U.S. trade or business.;d. Unless the corporation earns at least;25% of its gross income over the immediately preceding three tax years from the;active conduct of a foreign trade or business.;e. In all of the above cases.;925. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #7;Chang, an NRA, is employed by Fisher, Inc., a foreign corporation. In November;Chang spends 12 days in the United States performing consulting services for;Fisher?s U.S. branch. She earns $5,000 per month. A month includes 20 workdays.;a.;Chang has no U.S.-source income, under the commercial traveler exception.;b. Chang has $3,000 U.S.-source income;since her foreign employer has a U.S. branch.;c. Chang has $60,000 U.S.-source income;which is exempt from U.S. taxation, since she is in the U.S. for 90 days or;less.;d. Chang has $60,000 U.S.-source income;which is exempt from U.S. taxation, since she is working for a foreign;employer.;926. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #8;USCo, a domestic corporation, purchases inventory for resale from distributors;within the U.S. and resells this inventory to customers outside the U.S., with;title passing outside the U.S. What is the source of the USCo?s inventory sales;income?;a.;50% U.S. source and 50% foreign source.;b. 50% foreign source and 50% sourced;based on location of manufacturing assets.;c. 100% U.S. source.;d. 100% foreign source.;927. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #9;Liang, an NRA, is sent to the United States by Fuller Corporation, her foreign;employer. She spends 50 days in the United States and earns $15,000 for a;two-month period. This amount is attributable to 40 U.S. working days and 10;foreign working days. Her employer does not have a U.S. trade or business and;Liang spends no other time in the U.S. for the tax year. Liang?s U.S.-source;taxable income is;a.;$0.;b. $3,000.;c. $12,000.;d. $15,000.;928. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #10;Olaf, a citizen of Norway with no trade or business activities in the United;States, sells at a gain 200 shares of MicroShift, Inc., a U.S. company. The;sale takes place through Olaf?s broker in Oslo. How is this gain treated for;U.S. tax purposes?;a.;It is foreign-source income subject to U.S. taxation.;b. It is foreign-source income not;subject to U.S. taxation.;c. It is U.S.-source income subject to;U.S. taxation.;d. It is U.S.-source income exempt from;U.S. taxation.;929. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #11;During the current year, USACo (a domestic corporation) sold equipment to;FrenchCo, a foreign corporation, for $350,000, with title passing to the buyer;in France. USACo purchased the equipment several years ago for $100,000 and;took $80,000 of depreciation deductions on the equipment, all of which were;allocated to U.S.-source income. USACo?s adjusted basis in the equipment is;$20,000 on the date of sale. What is the source of the $330,000 gain on the;sale of this equipment?;a.;$250,000 U.S. source and $80,000 foreign source.;b. $330,000 U.S. source.;c. $330,000 foreign source.;d. $250,000 foreign source and $80,000;U.S. source.;930. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #12;Flan, a U.S. corporation, reports $250,000 interest expense for the tax year.;None of the interest relates to nonrecourse debt or loans from affiliated;corporations. Flan?s U.S. and foreign assets are as follows.;Fair market value?;U.S.;assets;$ 5,000,000;Foreign;assets;$10,000,000;Tax book value?;U.S.;assets;$ 2,000,000;Foreign;assets;$ 1,000,000;How should Flan assign its interest expense between U.S. and foreign sources to;maximize its FTC for the current year?;a.;Using tax book values.;b. Using tax book value for U.S. source;and fair market value for foreign source.;c. Using fair market value.;d. Using fair market value for U.S.;source and tax book value for foreign source.;931. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #13;Which of the following statements best describes the purpose of ? 482, under;which the Treasury can reallocate income and deductions among related;taxpayers?;a.;To provide tax benefits to U.S. multinationals that export U.S. produced;property.;b. To allow the IRS to select the best;method for determining transfer prices for U.S. taxpayers.;c. To alleviate double taxation problems;generated by related entities doing business in two or more countries.;d. To place a controlled entity on a tax;parity with an uncontrolled entity with regard to prices charged by the;entities.;932. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #14;Section 482 is used by the Treasury to;a.;Force taxpayers to use arms-length transfer pricing on transactions between;related parties.;b. Reallocate income, deductions, etc.;to a related taxpayer to minimize tax liability.;c. Increase information that is reported;about U.S. corporations with non-U.S. owners.;d. All of the above.;e. None of the above.;933. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #15;An advance pricing agreement (APA) is used between;a.;Two or more governments.;b. Two related taxpayers.;c. The taxpayer and the IRS.;d. The IRS and U.S. taxing authorities.;934. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #16;Flapp Corporation, a domestic corporation, conducts all of its transactions in;the U.S. dollar. It sells inventory for $1 million to a Canadian company when;the exchange rate is $1US: $1.2Can. The Canadian company pays for the inventory;when the exchange rate is $1US: $1.25Can. What is Flapp?s exchange gain or loss;on this sale?;a.;Flapp does not have a foreign currency exchange gain or loss, since it conducts;all of its transactions in the U.S. dollar.;b. Flapp?s account receivable for the;sale is $1 million (when the exchange rate is $1US: $1.2Can.) and it collects;on the receivable when the exchange rate is $1US: $1.25Can. Flapp has an;exchange gain of $50,000.;c. Flapp?s account receivable for the;sale is $1 million (when the exchange rate is $1US: $1.2Can.). It collects on;the receivable at $1US: $1.25Can. Flapp has an exchange loss of $5,000.;d. Flapp?s foreign currency exchange;loss is $50,000.;935. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #17;Wood, a U.S. corporation, owns Holz, a German corporation. Wood receives a;dividend (non-Subpart F income) from Holz of 75,000?. The average exchange rate;for the year is $1US: 0.6?, and the exchange rate on the date of the dividend;distribution is $1US: 0.80?. Wood?s exchange gain or loss is;a.;$15,000 loss.;b. $15,000 gain.;c. $75,000 gain.;d. $0. There is no exchange gain or loss;on a dividend distribution.;936. CHAPTER 9?TAXATION OF INTERNATIONAL TRANSACTIONS;Question MC #18;Wood, a U.S. corporation owns 30% of Hout, a foreign corporation. The remaining;70% of Hout is owned by other foreign corporations not controlled by Wood.;Hout?s functional currency is the euro. Wood receives a 50,000? distribution;from Hout. If the average exchange rate for the E & P to which the dividend;is attributed is 1.2?: $1, the exchange rate at year end is.95?: $1, and on;the date of the dividend payment the exchange rate is 1.1?: $1, what is Wood?s;tax result from the distribution?;a.;Wood receives a dividend of $45,455 and realizes an exchange gain of $3,788;[$45,455 minus $41,667 (50,000?/1.2)].;b. Wood receives a dividend of $52,632;(50,000?/.95) with no exchange gain or loss.;c. Wood receives a dividend of $41,667;and realizes an exchange loss of $3,788 ($41,667 minus $45,455).;d. Wood receives a dividend of $45,455;(50,000?/1.1) with no exchange gain or loss.;937. CHAPTER 9?TAXATION;OF INTERNATIONAL TRANSACTIONS Question MC #19;Generally, accrued foreign taxes are;a.;Translated at the exchange rate when paid.;b. Translated at the exchange rate on;date accrued.;c. Translated at the average exchange;rate for the tax year.;d. Translated at the average exchange;rate for the last five years.;938. Question MC #20;Which of the following statements regarding translation of foreign taxes is;true?;a.;Foreign taxes are typically paid in a foreign currency and thus must be;converted to U.S. dollars when used as a FTC on a U.S. return.;b. Foreign taxes are translated into;U.S. dollars only when such translation provides a tax benefit to the taxpayer.;c. Translation of foreign taxes into;U.S. dollars helps manage the U.S. balance of trade.;d. Translation of foreign taxes into;U.S. dollars encourages foreign corporations to set up operations in the United;States.;939. Question MC #21;BlueCo, a domestic corporation, incorporates its foreign branch in a ? 351;exchange, creating GreenCo, a wholly owned foreign corporation. BlueCo;transfers $200 in inventory (basis = $50) and $900 in land (basis = $950) to;GreenCo. GreenCo uses these assets in carrying on a trade or business outside;the United States. What gain or loss, if any, is recognized as a result of this;transaction?;a.;$0.;b. ($50).;c. $100.;d. $150.;940. Question MC #22;RedCo, a domestic corporation, incorporates its foreign branch in a ? 351;exchange, creating GreenCo, a wholly owned foreign corporation. RedCo transfers;$200 in Yen (basis = $150) and $900 in land (basis = $925) to GreenCo. GreenCo;uses these assets in carrying on a trade or business outside the United States.;What gain or loss, if any, is recognized as a result of this transaction?;a.;$0.;b. $50.;c. $25.;d. ($25).;941. Question MC #23;Which of the following transactions by a U.S. corporation may result in;taxation under ? 367?;a.;Incorporation of U.S branch as a U.S. corporation when the branch earns;foreign-source income.;b. Incorporation of a U.S. branch as a;U.S. corporation if the new U.S. corporation also has foreign shareholders.;c. Incorporation of a U.S. branch as a;U.S. corporation if the new U.S. corporation has no foreign shareholders.;d. All the above.;e. None of the above.;942. Question MC #24;A tax haven often is;a.;A country with high internal taxes.;b. A country without income tax;treaties.;c. A country with no or low internal;taxes.;d. A country that prohibits ?treaty;shopping.?;e. None of the above statements is true.;943. Question MC #25;In which of the following independent situations would a foreign corporation be;classified as a controlled foreign corporation?;a.;The stock is directly owned 12% by Jen, 10% by Kathy, 12% by Leslie, 10% by;David, 8% by Ben, and 48% by Mike. Jen, Kathy, Leslie, David, and Ben are all U.S.;citizens. Mike is a foreign resident and citizen.;b. The stock is directly owned 12% by;Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.;Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. David is married to;Kathy. Mike is a foreign resident and citizen.;c. The stock is directly owned 12% by;Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.;Jen, Kathy, Leslie, David, and Ben are all U.S. citizens. Ben is Mike?s son.;Mike is a foreign resident and citizen.;d. The stock is directly owned 12% by;Jen, 10% by Kathy, 12% by Leslie, 10% by David, 8% by Ben, and 48% by Mike.;Jen, Kathy, Leslie, David, Ben, and Mike are all U.S. citizens.;944. Question MC #26;The following persons own Schlecht Corporation, a foreign corporation.;Jim, U.S. individual;35%;Gina, U.S. individual;15%;Marina, U.S. individual;8%;Pedro, U.S. individual;12%;Chee, non-U.S. individual;30%;None of the shareholders are related. Subpart F income for the tax year is;$300,000. No distributions are made. Which of the following statements is correct?;a.;Schlecht is not a CFC.;b. Chee includes $90,000 in gross;income.;c. Marina is not a U.S. shareholder.;d. Marina includes $24,000 in gross;income.;e. None of the above statements is;correct.;945. Question MC #27;Copp, Inc., a domestic corporation, owns 30% of a CFC that has $50 million of;earnings and profits for the current year. Included in that amount is $20;million of Subpart F income. Copp has been a CFC for the entire year and makes;no distributions in the current year. Copp must include in gross income (before;any ? 78 gross-up);a.;$0.;b. $50 million.;c. $20 million.;d. $6 million.;946. Question MC #28;A controlled foreign corporation (CFC) realizes Subpart F income from;a.;Purchase of inventory from unrelated party and sale outside the CFC country.;b. Purchase of inventory from a related;party and sale outside the CFC country.;c. Services performed for the U.S.;parent in a country in which the CFC was organized.;d. Services performed on behalf of an;unrelated party in a country outside the country in which the CFC was;organized.;e. None of the above transactions.;947. Question MC #29;Which of the following income items does not;represent Subpart F income if earned by a controlled foreign corporation?;Purchase of inventory from the U.S. parent, followed by;a.;Sale to anyone inside the CFC country.;b. Sale to anyone outside the CFC;country.;c. Sale to a related party outside the;CFC country.;d. Sale to a non-related party outside;the CFC country.;948. Question MC #30;Steve, Inc., a U.S. shareholder owns 100% of a CFC from which Steve receives a;$3 million cash distribution. The CFC?s E & P is composed of the following;amounts.;?;$1,500,000 attributable to previously taxed;increases in investment in U.S. property.;?;$500,000 attributable to previously taxed Subpart;F income.;?;$4,800,000 attributable to other E & P.;Steve recognizes a taxable dividend of;a.;$3 million.;b. $2 million.;c. $1.5 million.;d. $0.;949. Question MC #31;OutCo, a controlled foreign corporation, earns $600,000 in net interest and;dividend income from investments in the bonds and stock of unrelated companies.;All of the unrelated companies are located in OutCo?s country of incorporation.;OutCo?s Subpart F income for the year is;a.;$0.;b. $0 only if OutCo is engaged in a;trade or business in its home country.;c. $600,000 only if OutCo is engaged in;a trade or business in its home country.;d. $600,000.;950. Question MC #32;OutCo, a controlled foreign corporation owned 100% by USCo, earned $900,000 in;Subpart F income for the current year. OutCo?s current year E & P is $250,000;and its accumulated E & P is $18 million. What is the current year Subpart;F deemed dividend to USCo?;a.;$250,000.;b. $650,000.;c. $900,000.;d. $18 million.;951. Question MC #33;Peanut, Inc., a domestic corporation, receives $500,000 of foreign-source;interest income on which foreign taxes of $5,000 are withheld. Its worldwide;taxable income is $900,000, and U.S. tax liability before FTC is $315,000. What;is Peanut?s foreign tax credit?;a.;$500,000.;b. $315,000.;c. $175,000.;d. $5,000.;952. Question MC #34;Abbott, Inc., a domestic corporation, reports worldwide taxable income of $8;million, including a $900,000 dividend from ForCo, a wholly-owned foreign;corporation. ForCo?s post-1986 undistributed E & P are $18 million and it;has paid $12 million of foreign income taxes attributable to these earnings.;What is Abbott?s deemed paid foreign tax credit related to the dividend;received (before consideration of any limitation)?;a.;$0.;b. $600,000.;c. $900,000.;d. $18 million.;953. Question MC #35;Ridge, Inc., a domestic corporation, reports worldwide taxable income of;$800,000, including a $300,000 dividend from Emma, Inc., a foreign corporation.;Ridge?s U.S. tax liability before FTC is $280,000. Ridge owns 20% of Emma.;Emma?s post-1986 E & P after taxes is $8 million and it has paid foreign;taxes of $4 million attributable to that E & P. If Ridge elects the FTC;its U.S. gross income with regard to the dividend from Emma is;a.;$450,000.;b. $300,000.;c. $90,000.;d. $60,000.;954. Question MC #36;Amber, Inc., a domestic corporation receives a $150,000 cash dividend from;Starke, Ltd. Amber owns 15% of Starke. Starke?s post-1986 E & P is $2;million and it has paid foreign taxes of $1 million attributable to that E;P. What is Amber?s foreign tax credit related to the Starke dividend?;a.;$200,000.;b. $150,000.;c. $100,000.;d. $75,000.;955. Question MC #37;Amber, Inc., a domestic corporation receives a $150,000 cash dividend from;Starke, Ltd. Amber owns 15% of Starke. Starke?s post-1986 E & P is $2;million and it has paid foreign taxes of $1 million attributable to that E;P. What is Amber?s gross income related to the Starke dividend?;a.;$225,000.;b. $150,000.;c. $33,750.;d. $22,500.;956. Question MC #38;Kilps, a U.S. corporation, receives a $200,000 dividend from a 20% owned;foreign corporation. The deemed-paid taxes attributable to this dividend are;$40,000 and foreign taxes withheld on remittance of the dividend are $30,000.;Kilps?s U.S. tax liability before the FTC is $350,000, the gross dividend;income is $240,000, and Kilps?s worldwide taxable income is $1 million. Kilps?s;foreign tax credit for the taxable year is;a.;$84,000.;b. $70,000.;c. $40,000.;d. $30,000.;957. Question MC #39;Which of the following is not a specific separate income ?basket? for purposes;of the foreign tax credit limitation calculation?;a.;Business income.;b. Passive income.;c. Intangibles income.;d. None of the above are separate FTC;limitation baskets.;e. All of the above are separate FTC;limitation baskets.;958. Question MC #40;USCo, a domestic corporation, receives $100,000 of foreign-source income in the;general income basket and $40,000 of foreign-source income in the passive;income basket. Worldwide taxable income is $1,200,000 and the U.S. tax;liability before FTC is $420,000. Foreign taxes attributable to the general;income basket are $60,000 and to the passive income are $4,000. What is USCo?s;foreign tax credit for the tax year?;a.;$39,000.;b. $64,000.;c. $60,000.;d. $4,000.;e. Some other amount.;959. Question MC #41;A non-U.S. individual?s ?green card? remains in effect until;a.;The individual discards it.;b. The individual leaves the United;States;c. The individual remains outside the;United States for two years.;d. The card has been revoked or the;individual has abandoned lawful permanent residency in the U.S.;960. Question MC #42;Which of the following would not prevent an alien without a ?green card? from;being classified as a U.S. resident for income tax purposes?;a.;The individual was in the United States to oversee her investments.;b. The individual was prevented from;leaving the United States due to an illness which arose while in the United;States.;c. The individual is a foreign consul;assigned to the United States.;d. The individual commutes daily from;Mexico to the United States to work.;961. Question MC #43;Shannon, a foreign person with a green card, spends the following days in the;United States.;2010;360 days;2011;150 days;2012;30 days;Shannon?s residency status for 2012 is;a.;U.S. resident because she has a green card.;b. U.S. resident since she was a U.S.;resident for the past immediately preceding two years.;c. Not a U.S. resident because Shannon;was not in the United states for at least 31 days during 2012.;d. Not a U.S. resident since, using the;three-year test, Shannon is not present in the United states for at least 183;days.;962. Question MC #44;Lang, an NRA who was not a resident of a treaty country, receives taxable;dividends of $50,000 from U.S. corporations. Lang does not conduct a U.S. trade;or business. Lang?s dividends are taxed by the United States through;withholding by the payor of;a.;0%.;b. 15%.;c. 30%.;d. 35%.;963. Question MC #45;Which of the following statements regarding foreign persons not engaged in a;U.S. trade or business is true?;a.;Foreign persons are not subject to U.S. tax if not engaged in a U.S. trade or;business.;b. Foreign persons with any U.S.-source;income are taxed on net investment income (after expenses).;c. Foreign persons are subject to;potential withholding taxes on the gross amount of U.S.-source investment;income.;d. Foreign persons with only U.S.-source;investment income are exempt from U.S. tax.;e. None of the above statements are;true.;964. Question MC #46;The following income of a foreign corporation is not subject to the regular;U.S. corporate income tax rates.;a.;Capital gains effectively connected with a U.S. trade or business.;b. FIRPTA gains.;c. Fixed, determinable, annual or;periodic income effectively connected with a U.S. trade or business.;d. Income from sale of inventory where;title passes in the United States, but no U.S. trade or business exists.

 

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