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Exam 13: Multijurisdictional Taxation

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Question 41

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Hill Corporation is subject to tax only in State X.Hill generated the following income and deductions.State income taxes are not deductible for X income tax purposes. $\begin{array}{ll}\text { Sales } & \$ 5,000,000 \\\text { Cost of sales } & 2,000,000 \\\text { State X income tax expense } & 160,000 \\\text { Depreciation allowed for Federal tax purposes } & 1,000,000 \\\text { Depreciation allowed for state tax purposes } & 800,000 \\\text { Interest income on Federal obligations } & 50,000 \\\text { Interest income on X obligations } & 200,000 \\\text { Expensesrelated to carrying X obligations } & 10,000\end{array}$ a. The stating point in computing the X income tax base is Federal taxable income. Derive this amount. b. Determine Hill's X taxable income, assuming that interest on X obligations is exempt from X income tax c. Determine Hill's taxable income, assumingthat interest on X obligations is subject to X income tax.

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a.
\(\begin{array}{ll}
\text { Sales } ...

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Question 42

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Which of the following is not a foreign person?

A) Foreign corporation 51% owned by U.S.shareholders.
B) Foreign corporation 100% owned by a domestic corporation.
C) Citizen of Germany with U.S.permanent resident status (i.e.,green card) .
D) Citizen of Italy who spends 14 days vacationing in the United States.

E) C) and D)
F) A) and B)

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Question 43

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Chipper,Inc.,a U.S.corporation,reports worldwide taxable income of $1 million,including a $300,000 dividend from Emma,Inc.,a foreign corporation.Chipper's U.S.tax liability before FTC is $340,000.Chipper owns 20% of Emma.Emma's E & P after taxes is $8 million and it has paid foreign taxes of $2 million attributable to that E & P.If Chipper elects the FTC,its U.S.gross income with regard to the dividend from Emma is:

Section 482 is used by the Treasury to:

Subpart F income includes portfolio income like dividends and interest.

All of the U.S.states have adopted a tax based on the net taxable income of corporations.

Simpkin Corporation owns manufacturing facilities in States A,B,andC A uses a three-factor apportionment formula under which the sales,property and payroll factors are equally weighted.B uses a three-factor apportionment formula under which sales are double-weighted.C employs a single-factor apportionment factor,based solely on sales. Simpkin's operations generated $1,000,000 of apportionable income,and its sales and payroll activity and average property owned in each of the three states is as follows. $\begin{array}{lcccc}&\textbf{State A} &\textbf{State B}&\textbf{State C}&\textbf{Totals}\\Sales & \$ 400,000 & \$800,000 & \$300,000 & \$1,500,000 \\Payroll & 100,000 & 150,000 & 50,000 & 300,000 \\Property & 200,000 & 200,000 & 200,000 & 600,000 \\\end{array}$ Simpkin's apportionable income assigned to B is:

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

With respect to income generated by non-U.S.persons,does the U.S.apply a "worldwide" or a "territorial" approach.Be specific.

Flip Corporation operates in two states,as indicated below.All goods are manufactured in State A.Determine the sales to be assigned to both states to be used in computing Flip's sales factor for the year.Both states follow the UDITPA and the MTC regulations in this regard. $\begin{array}{lll}&\textbf{State A}&\textbf{State B}\\\text { Gross sales to purchasers in state } & \$ 400,000 & \$ 350,000 \\\text { Sales returns } & 9,000 & 11,000 \\\text { Discounts allowed } & 21,000 & 31,000 \\\text { Caryying charges collected back from customers, separately stated } & 20,000 & 10,000 \\\text { Rental income } & 60,000^* & 25,000^{**}\end{array}$ * Excess warehouse space,seasonal rental to a competitor. ** Land held for speculation.

In international corporate income taxation,what are the uses of the "sourcing rules" in computing Federal taxable income?

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:

Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.

Qwan,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.Qwan's U.S.and foreign assets are reported as follows. $\begin{array}{lr}\text {Fair market value}-\\~~~\text { U.S. assets } & \$~~ 5,000,000 \\~~~\text { Foreign assets } & \$ 10,000,000\\\text {Tax book value}-\\~~~\text { U.S. assets } & \$ 2,000,000 \\~~~\text { Foreign assets } & \$ 6,000,000\end{array}$ How should Qwan assign its interest expense between U.S.and foreign sources to maximize its FTC for the current year?

Which of the following statements is true,concerning the sourcing of income from inventory produced by the taxpayer in the U.S.and sold outside the U.S.?

OutCo,a controlled foreign corporation in Meena,earns $600,000 in net interest and dividend income from investments in the bonds and stock of unrelated companies.All of the dividend payors are located in Meena.OutCo's Subpart F income for the year is:

Which of the following statements is false in regard to the U.S.income tax treaty program?

Typical indicators of income-tax nexus include the presence of customers in the state.

Goolsbee,Inc.,a U.S.corporation,generates U.S.-source and foreign-source gross income.Goolsbee's assets (tax book value)are as follows. $\begin{array}{ll}\text { Generating U.S.-source income } & \$ 15,000,000 \\\text { Generating foreign-source income } & \underline{25,000,000} \\\text { Total } & \underline{\$ 40,000,000}\end{array}$ Goolsbee incurs interest expense of $200,000.Using the fair market value and the tax book value,apportion interest expense to foreign-source income.

A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.