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In: Accounting

Manila Corporation is organized in Country J. All of Manila’s stock is owned by Simpson, a...

Manila Corporation is organized in Country J. All of Manila’s stock is owned by Simpson, a U.S. corporation. Indicate which of the following transactions generate Subpart F income.

a. Manila purchases a product from Simpson and sells it to unrelated parties in Countries J and X.parties in Count

ries J and X.

b. Manila receives a dividend from Manila-Sub, a foreign corporation organized and operating exclusively in Country J. All of Manila-Sub’s stock has been owned by Manila since its incorporation.

c. Manila purchases raw materials locally, manufactures products in Country J, and sells the products to an unrelated purchaser for use in Country Z.

d. Manila services machinery manufactured by an unrelated Country J corporation. Revend sells the product to unrelated persons in Country Z.ues from servicing this machinery outside of Country J constitute 80% of Manila’s gross income.

e. Manila purchases a product from a related U.S. corporation annd sells the product to unrelated persons in Country Z.

Solutions

Expert Solution

Any income earned by a Controlled Foreign Corporation (CFC) that is not distributed or otherwise taxed for the tax year in which it was earned is considered constructively repatriated, and therefore, US persons — which includes citizens, residents, domestic corporations, partnerships, estates, and trusts of the US — must include the pro rata share of their CFC Subpart F income in their gross income. IRC §951.

A CFC is considered any foreign corporation where US persons own more than 50% of the total voting power or value of the corporate stock and who individually also own at least 10% of the CFC voting stock

Accordingly,

a. Manila purchases a product from Simpson and sells it to unrelated parties in Countries J and X.parties in Countries J and X generates subpart income F

b. Does not generate subpart income F

c. generate subpart income F

d. generate subpart income F

e. generate subpart income F

ekkarill92 answered 2 years ago
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