ACCT 414 Chapter 16

C) $8,000

A U.S. citizen accrued $120,000 of creditable foreign taxes last year. The citizen's foreign tax credit limitation for last year is $90,000 (only a single limitation need be calculated). The excess foreign tax credit limitation for the year preceding the year in which the excess foreign taxes were incurred is $2,000. A similar $2,000 excess foreign tax credit limitation position is expected in each of the next 10 years. What portion of the excess foreign taxes can be expected to be noncreditable because of the foreign tax credit limitation? A) $0 B) $2,000 C) $8,000 D) none of the above

A) last year.

A U.S. citizen, who uses a calendar year as his tax year, is transferred to a foreign country by his employer. The U.S. citizen arrived in the foreign country on November 3 of last year. Residency is expected to be maintained in the foreign country until August 4 of next year. None of the years are a leap year. The first year for which an earned income exclusion can be claimed is A) last year. B) the current year. C) next year. D) The earned income exclusion cannot be claimed.

A) $0.

A controlled foreign corporation (CFC) is incorporated in Country B, and is 100% owned by American Manufacturing Corporation. It purchases raw materials from its U.S. parent corporation, manufactures widgets, and sells 70% of the widgets to unrelated purchasers in Country A and 30% to unrelated purchasers in Country B. All widgets will be used in the countries in which they are purchased. The sales produce $100,000 of taxable income. The foreign-based company sales income reportable by American Manufacturing Corporation under the Subpart F rules is A) $0. B) $30,000. C) $70,000. D) $100,000.

C) There are two "U.S. shareholders" and the foreign corporation is not a controlled foreign corporation (CFC).

A foreign corporation is owned by five unrelated individuals. John, Sam, and David are U.S. citizens who own 30%, 18% and 9%, respectively, of the foreign corporation's single class of stock. Alberto and Manuel are nonresident aliens who own 37% and 6%, respectively, of the foreign corporation's stock. Which of the following statements is true? A) There are three "U.S. shareholders" and the foreign corporation is a controlled foreign corporation (CFC). B) There are three "U.S. shareholders" and the foreign corporation is not a controlled foreign corporation (CFC). C) There are two "U.S. shareholders" and the foreign corporation is not a controlled foreign corporation (CFC). D) There are two "U.S. shareholders" and the foreign corporation is a controlled foreign corporation (CFC).

B) elect to be treated as a resident alien before satisfying the substantial presence test for the calendar year following the election year if unmarried.

A nonresident alien cannot A) elect to be treated as a resident alien. B) elect to be treated as a resident alien before satisfying the substantial presence test for the calendar year following the election year if unmarried. C) make an irrevocable election to be treated as a resident alien after satisfying the substantial presence test. D) make an election to be treated as a resident alien if married to a resident alien.

D) The nonresident alien must pay estimated taxes on the dividend income at a 30% rate.

A nonresident alien earns $10,000 of dividends from a domestic corporation, which is the alien's only U.S. source income. Which one of the following statements is incorrect? A) The nonresident alien's U.S. tax rate is 30% unless reduced by a tax treaty. B) The domestic corporation must withhold the U.S. taxes from the alien's dividend payment. C) The 30% tax rate is applied against gross income. D) The nonresident alien must pay estimated taxes on the dividend income at a 30% rate.

A) annually.

A taxpayer may make the election to either deduct or take a credit for foreign income taxes A) annually. B) once every five years. C) only once, and the election applies to all future tax years. D) No election is available.

B) $5,682

Alan, a U.S. citizen, works in Germany and earns $70,000, paying $20,000 in German taxes. His U.S. income is $40,000 and he pays $8,000 in U.S. taxes. His U.S. taxes on his worldwide income are $22,500. What is Alan's excess foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion. A) $0 B) $5,682 C) $8,000 D) none of the above

B) $14,318

Alan, a U.S. citizen, works in Germany and earns $70,000, paying $20,000 in German taxes. His U.S. income is $40,000 and he pays $8,000 in U.S. taxes. His U.S. taxes on his worldwide income are $22,500. What is Alan's foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion. A) $12,000 B) $14,318 C) $20,000 D) none of the above

B) $2,000

Ashley, a U.S. citizen, works in England for part of the year. She earns $40,000 in England, paying $10,000 in income taxes to the British government. Her U.S. income is $60,000 and she pays $12,000 in U.S. taxes. Her U.S. taxes on her worldwide income are $20,000. What is Ashley's excess foreign tax credit? Assume she does not qualify for the foreign-earned income exclusion. A) $0 B) $2,000 C) $4,000 D) none of the above

A) $8,000

Ashley, a U.S. citizen, works in England for part of the year. She earns $40,000 in England, paying $10,000 in income taxes to the British government. Her U.S. income is $60,000 and she pays $12,000 in U.S. taxes. Her taxes on her worldwide income are $20,000. What is Ashley's foreign tax credit? Assume she does not qualify for the foreign-earned income exclusion. A) $8,000 B) $10,000 C) $12,000 D) none of the above

D) every country of manufacture on a pro-rata allocation basis.

For the foreign credit limitation calculation, income derived from the sale of inventory which is produced by the seller, is considered earned A) where production occurs. B) where the sale occurs. C) where the seller is a resident. D) every country of manufacture on a pro-rata allocation basis.

B) Nonresident aliens may use either the standard deduction or claim itemized deductions.

Identify which of the following statements is false. A) A nonresident alien can elect to have income earned on a passive real estate investment treated as trade or business income. B) Nonresident aliens may use either the standard deduction or claim itemized deductions. C) Nonresident aliens are generally allowed to claim only a single personal exemption. D) All of the above are false.

C) Income from the sale of personal property (other than inventory) by a U.S. resident is considered earned in the country where the personal property is delivered.

Identify which of the following statements is false. A) An accrual-basis taxpayer must make an adjustment to their foreign tax credit which reflects the change in exchange rates between the accrual date and the payment date. B) Dividend income received by a U.S. individual from a foreign corporation earning nearly all of its income from outside the United States is foreign-source income. C) Income from the sale of personal property (other than inventory) by a U.S. resident is considered earned in the country where the personal property is delivered. D) Itemized deductions are allocated between U.S. and foreign-source income.

C) An individual meets the bona fide resident test by establishing a home in a foreign country for 330 days.

Identify which of the following statements is false. A) Earned income is excludable from gross income only if it is foreign-source income. B) Taxable pensions and annuities are excluded from the definition of earned income when computing the foreign-earned income exclusion. C) An individual meets the bona fide resident test by establishing a home in a foreign country for 330 days. D) All of the above are false.

C) A taxpayer who is physically present in a foreign country for 330 full days out of a 12-month period satisfies the bona fide foreign resident test.

Identify which of the following statements is false. A) The foreign-earned income exclusion is $104,100 in 2018. B) The primary purpose for the foreign-earned income exclusion is to prevent double taxation of income. C) A taxpayer who is physically present in a foreign country for 330 full days out of a 12-month period satisfies the bona fide foreign resident test. D) All of the above are false.

D) All of the above are false.

Identify which of the following statements is true. A) An individual who is physically present in a foreign country for 330 full days out of a 12-month period can claim the foreign-earned income exclusion only for the days in the 12-month period he/she is physically present in a foreign country. B) An individual, who is a bona fide resident of a foreign country for at least one full tax year, can claim the foreign-earned income exclusion for all days on which he/she is a resident of the foreign country and physically present in that country. C) Fringe benefits that are excluded from gross income under a Code Section other than Sec. 911 reduce the annual dollar ceiling for the foreign income exclusion. D) All of the above are false.

A) Capital gains earned in the United States, other than in the conduct of a U.S. trade or business, are taxed to a nonresident alien only if the alien is physically present in the United States for at least 183 days during the tax year.

Identify which of the following statements is true. A) Capital gains earned in the United States, other than in the conduct of a U.S. trade or business, are taxed to a nonresident alien only if the alien is physically present in the United States for at least 183 days during the tax year. B) Aliens, who are U.S. residents, are taxed only on their U.S. income. C) A nonresident alien from a nontreaty country is taxed at a 35% rate on U.S. source investment income without the benefit of any deductions. D) All of the above are true.

C) When a controlled foreign corporation (CFC) earns Subpart F income, such income is considered to be a constructive distribution to the CFC's U.S. shareholders on the last day of the CFC's tax year, or the last day on which CFC status is retained.

Identify which of the following statements is true. A) For a foreign corporation to be a controlled foreign corporation (CFC), more than 40% of its voting stock, or more than 40% of the value of its outstanding stock, must be owned by U.S. shareholders on any day of the corporation's tax year. B) Under the Subpart F rules, controlled foreign corporations (CFCs) are required to distribute a certain portion of their income as dividends to their U.S. shareholders. C) When a controlled foreign corporation (CFC) earns Subpart F income, such income is considered to be a constructive distribution to the CFC's U.S. shareholders on the last day of the CFC's tax year, or the last day on which CFC status is retained. D) All of the above are true.

C) Dividends generally are considered to be earned in the distributing corporation's country of incorporation.

Identify which of the following statements is true. A) Foreign taxes paid in excess of the foreign tax credit limitation can be carried back to the previous three tax years and then carried over to the succeeding five tax years. B) When a taxpayer reports excess foreign tax credits in more than one year, the excess credits are used in a last-in-first-out (LIFO) manner. C) Dividends generally are considered to be earned in the distributing corporation's country of incorporation. D) All of the above are false.

D) All of the above are true.

Identify which of the following statements is true. A) Foreign-based company sales income is earned when personal property is purchased by a Country X controlled foreign corporation (CFC) from its U.S. parent corporation and is sold to unrelated persons in Country Z. B) Section 482 permits the IRS to restructure transactions between related parties as if the transactions were conducted at arm's length. C) One tax avoidance practice which Sec. 482 attempts to prevent is the transfer of tangible property to a foreign subsidiary at a price which is below the arm's-length price that would be used by unrelated parties. D) All of the above are true.

C) An individual who is a resident alien of the United States is taxed on his or her worldwide income at the same tax rates that would apply to a U.S. citizen.

Identify which of the following statements is true. A) If a foreign national has a closer connection with his home country, the individual is taxed as a resident alien. B) To obtain resident status, an alien must meet both the lawful permanent resident test and the substantial presence test. C) An individual who is a resident alien of the United States is taxed on his or her worldwide income at the same tax rates that would apply to a U.S. citizen. D) All of the above are false.

D) All of the above are true.

Identify which of the following statements is true. A) U.S. citizens, resident aliens, and domestic corporations are taxed by the U.S. government on their worldwide income at regular U.S. tax rates. B) Nonresident aliens and foreign corporations are not subject to U.S. taxation on their non-U.S. source investment income and part or all of their non-U.S. source trade or business income. C) In a particular year, the overall foreign tax credit limitation permits a taxpayer to offset "excess" foreign taxes paid in one country against "excess" limitation amounts originating in other countries. D) All of the above are true.

B) The taxpayer may revoke an election to exclude foreign-source earned income if a loss is incurred from foreign employment.

Identify which of the following statements is true. A) When a cash-basis taxpayer elects to take a credit for accrued foreign income taxes, certain other income and expense items must likewise be accrued. B) The taxpayer may revoke an election to exclude foreign-source earned income if a loss is incurred from foreign employment. C) A nonresident alien can elect to be considered a resident alien if the nonresident alien is married to a U.S. citizen or a resident alien sometime during the tax year and both spouses consent. D) All of the above are true.

B) A controlled foreign corporation (CFC) can avoid the constructive dividend distribution resulting from investments in U.S. property if it invests in U.S. government obligations.

Identify which of the following statements is true. A) When a controlled foreign corporation (CFC) uses Subpart F income to invest in U.S. property, the investments are characterized as constructive distributions. B) A controlled foreign corporation (CFC) can avoid the constructive dividend distribution resulting from investments in U.S. property if it invests in U.S. government obligations. C) Distributions made by a controlled foreign corporation (CFC) are deemed to be paid first from tax-deferred earnings. D) All of the above are false.

C) $48,000

In 2017, Phoenix Corporation is a controlled foreign corporation (CFC) incorporated in Country X. It is 100% owned by its U.S parent corporation. Phoenix has $80,000 of taxable income from the sale of widgets that were purchased from their U.S. parent corporation. All widgets have the same gross profit. Sixty percent of the widgets were sold through a Country Y wholesaler that is 100% owned by Phoenix, and are destined for use in Country Y. The remaining 40% are sold through unrelated Country X wholesalers and are destined for use in Country X. What amount of profits will be constructively distributed as foreign-based company sales income to the U.S. parent company? A) $0 B) $32,000 C) $48,000 D) $80,000

A) $0

In 2017, Phoenix Corporation is a controlled foreign corporation (CFC) incorporated in Country X. It is 100% owned by its U.S. parent corporation. Phoenix has $80,000 of taxable income from the sale of widgets that were purchased from their U.S. parent corporation. All widgets are intended for use or consumption within Country X and have the same gross profit. Sixty percent of the widgets were sold through a Country X wholesaler that is 100% owned by Phoenix, and 40% are sold through unrelated Country X wholesalers. What amount of profits will be constructively distributed as foreign-based company sales income to the U.S. parent company? A) $0 B) $32,000 C) $48,000 D) $80,000

D) Either A, B, or C can be correct.

Income is "effectively connected" with the conduct of a U.S. business only if A) the asset-use test is met. B) the business activities test is met. C) activities of the U.S. business are a material factor in the realization of the income. D) Either A, B, or C can be correct.

B) $75,000.

Julia, an accrual-method taxpayer, is a U.S. citizen and a resident of a foreign country. Her tax year for both countries is a calendar year. Julia accrues 50,000 coras for the foreign country tax liability on December 31 of last year when the exchange rate is one cora = $1. Julia pays the tax to the foreign country on its due date, March 1 of the current year. The exchange rate on that date is one cora = $1.50. Julia files her U.S. tax return for last year on April 15 of the current year when the exchange rate is one cora = $2. Julia's foreign tax credit is A) $50,000. B) $75,000. C) $100,000. D) none of the above

B) $8,000.

Karen, a U.S. citizen, earns $40,000 of taxable income from U.S. sources, $20,000 in taxable wages from Country A and $20,000 in taxable interest from Country B. The U.S. tax rate is 25%. The tax on Country A income is $8,000, and Country B charges no tax on the interest income. Assuming only a single basket is required, Karen's foreign tax credit that can be claimed is A) $5,000. B) $8,000. C) $10,000. D) none of the above

A) $5,000.

Karen, a U.S. citizen, earns $40,000 of taxable income from U.S. sources, $20,000 in taxable wages from Country A and $20,000 in taxable interest from Country B. The U.S. tax rate is 25%. The tax on Country A income is $8,000, and Country B charges no tax on the interest income. Assuming two baskets are needed for the two types of income because the interest is passive income, Karen's foreign tax credit that can be claimed is A) $5,000. B) $10,000. C) $20,000. D) none of the above

A) Foreign subsidiaries of U.S. corporations are exempt from the U.S. corporate income tax unless they earn U.S.-source investment or trade or business income.

Overseas business activities conducted by U.S. corporations receive which one of the following favorable tax breaks? A) Foreign subsidiaries of U.S. corporations are exempt from the U.S. corporate income tax unless they earn U.S.-source investment or trade or business income. B) Foreign subsidiaries of U.S. corporations are always exempt from the U.S. corporate income tax even if they earn U.S.-source investment or trade or business income. C) Domestic corporations conducting business in a foreign country through a branch office or facility can exempt non-U.S. income from the U.S. corporate income tax. D) All of the above are correct.

A) ordinary income taxable in the United States.

Pedro, a nonresident alien, licenses a patent to a U.S. company for an $11 per unit fee for each unit produced. As a result of receiving the fee, Pedro must recognize the fee as A) ordinary income taxable in the United States. B) capital gain taxable in the United States. C) no gain or income taxed in the United States. D) a portion of the gain, depending on the number of days Pedro is physically present in the United States during the current year

D) premiums paid on first $50,000 of group term life insurance

Perry, a U.S. citizen, is transferred by his employer to Japan for a three-year assignment. Which one of the following items is not excluded under Sec. 911? A) base salary B) cost-of-living allowance C) housing costs D) premiums paid on first $50,000 of group term life insurance

B) $180,000

Prior to 2018, domestic corporation X owns all the stock of controlled foreign corporation (CFC) T. X's acquisition cost for the CFC investment is $150,000. The CFC reports E&P of $200,000 since the domestic corporation acquired its interest, of which $120,000 was Subpart F income. The CFC makes a cash distribution of $90,000 to the domestic corporation. What is the domestic corporation's basis for its investment in T immediately after the cash distribution? A) $150,000 B) $180,000 C) $230,000 D) none of the above

C) presence in one or more foreign countries for at least 330 full days during a 12-month period.

The physical presence test method of qualifying for the foreign-earned income exclusion requires the A) presence in one foreign country for at least 330 full days during a 12-month period. B) presence in one or more foreign countries for at least 330 full days during a single tax year. C) presence in one or more foreign countries for at least 330 full days during a 12-month period. D) presence in one or more foreign countries for at least 330 consecutive full days during a 12-month period.

A) $13,376

U.S. citizen Barry is a bona fide resident of a foreign country for all of 2018. Barry uses a calendar year as his tax year and receives $158,000 in salary and allowances from his employer. Included in the $158,000 is a $25,000 housing allowance. Barry's housing costs are $30,000. The base housing amount for the current year is $16,624. What amount related to his housing can Barry exclude on his Form 2555? A) $13,376 B) $25,000 C) $30,000 D) $14,545

C) $3,376 for AGI.

U.S. citizen Patrick is a bona fide resident of a foreign country for all of the current year. Patrick uses a calendar year as his tax year. He has $100,000 of self-employment income and incurs $20,000 in housing expenses. The base housing cost amount is $16,624. The deduction for housing expenses is A) $16,624 for AGI. B) $16,624 from AGI. C) $3,376 for AGI. D) $6,816 from AGI.

B) $17,113

U.S. citizen who has a calendar tax year establishes a tax home and residence in a foreign country and qualifies for the foreign-earned income exclusion for 60 days in 2016; 365 days in 2017; and 60 days in 2018. The maximum earned income exclusion for 2018 rounded to the nearest whole number is? A) $17,733 B) $17,113 C) $16,151 D) none of the above

C) back one year; forward ten years

What are the carryback and carryforward periods for the foreign tax credit? A) back two years; forward five years B) back three years; forward ten years C) back one year; forward ten years D) back two years; forward twenty years

A) The foreign corporation will be treated as if it is a U.S. corporation.

What are the consequences of classification as a corporate inversion? A) The foreign corporation will be treated as if it is a U.S. corporation. B) Foreign tax credits will be disallowed on all future earnings. C) The corporation will be subject to a flat 35% tax rate. D) If more than half of the shareholders of the new company are the same as the former company, the corporation is considered a U.S. corporation.

C) the taxpayer's type of business

Which of the following characteristics is not used by the U.S. government to determine the tax treatment accorded foreign-related transactions? A) the taxpayer's country of citizenship B) the taxpayer's country of residence C) the taxpayer's type of business D) the type of income earned

A) Foreign branch losses can offset domestic income.

Which of the following is an advantage of conducting foreign operations through a branch? A) Foreign branch losses can offset domestic income. B) Foreign branch income is taxed at a lower rate than domestic income. C) The parent's assets are protected from foreign branch creditors. D) Foreign branch income is taxed by both the United States and the host country.

D) All of the above are required.

Which of the following is required in order for a transaction to be considered a corporate inversion? A) A foreign corporation acquires substantially all of the assets of a U.S. corporation. B) Former shareholders of the U.S. corporation own 80% or more of the stock in the foreign corporation by reason of their U.S. stock ownership. C) The former U.S. company and its affiliates do not conduct substantial business in the foreign country of incorporation. D) All of the above are required.

C) All of a controlled foreign corporation's earnings are taxed as earned.

Which of the following statements is incorrect? A) A domestic subsidiary's earnings are taxed in the year earned. B) A foreign corporation's (less than 50% ownership) are not taxed until repatriated. C) All of a controlled foreign corporation's earnings are taxed as earned. D) U.S. taxpayers with a foreign branch can reduce part or all of their U.S. taxes by the foreign tax credit.