Question

1.Which statement best describes the U.S. framework for determining if an individual who is not a U.S. citizen will be treated as a resident alien for U.S. tax purposes?

Multiple Choice A person must have a green card and meet a substantial presence test to be treated as a resident alien for U.S. tax purposes. A person must have a green card to be treated as a resident alien for U.S. tax purposes. A person must meet a substantial presence test to be treated as a resident alien for U.S. tax purposes. A person with a green card will always be treated as a resident alien for U.S. tax purposes, while a person without a green card may be treated as a resident alien if she meets a substantial presence test.

2.

Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in the current year. Boca also received a dividend of $100,000 from the corporation's 100 percent owned subsidiary in Italy. The dividend qualifies for the 100 percent dividends received deduction. The Italian government imposed a withholding tax of $5,000 on the dividend. Compute Boca Corporation's net U.S. tax liability for the current year.

Multiple Choice

• $231,000

• $227,000

• $210,000

• $205,000

3.

Which of the following foreign taxes is not creditable for U.S. tax purposes?

Multiple Choice

• Direct taxes paid by a U.S. corporation on income earned in a foreign branch.

• Income taxes paid to a foreign taxing authority on a dividend received by a U.S. corporation from its 100 percent owned foreign subsidiary.

• Withholding taxes imposed on a dividend received by a U.S. corporation from its 100 percent owned foreign subsidiary.

• All of these taxes are creditable.

4.

Orono Corporation manufactured inventory in the United States and sold the inventory to customers in Canada. Gross profit from the sale of the inventory was $300,000. Title to the inventory passed FOB: destination. How much of the gross profit is treated as foreign source income for purposes of computing the corporation's foreign tax credit in the current year?

Multiple Choice

• $300,000

• $150,000

• $0

• The answer cannot be determined with the information provided.

Answer 1

1. The correct answer will be option (d)  A person with a green card will always be treated as a resident alien for U.S. tax purposes, while a person without a green card may be treated as a resident alien if she meets a substantial presence test. It is because there are two ways in which a non U.S. citizen will be treated as a resident alien for U.S. tax purposes which are with a green card or without a green card. The other options (a), (b) and (c) are not correct because of the above reason.

2. The correct answer will be option (c) $210,000. It is because the dividend is eligible for a deduction of 100% dividends received. The precredit U.S. tax is:

$1,000,000 × 21%

=$210,000.

The withholding tax is not creditable because it is imposed on the dividend eligible for the 100% dividends received deduction.The other options (a), (b) and (d) are not correct because of the above reason.

3. The correct answer will be option (a) Direct taxes paid by a U.S. corporation on income earned in a foreign branch. It is because foreign taxes imposed on dividends eligible for the deduction of 100% dividends received are not creditable.The other options (b), (c) and (d) are not correct because of the above reason.

4. The correct answer will be option (c) $0. It is because Under Section 863(b), 100% of the gross income is sourced where the assets producing the inventory are located. In this case, the assets are located in the United States and so 100 percent of the gross profit is treated as U.S. source income.The other options (a), (b) and (d) are not correct because of the above reason.