1. USAco, a domestic corporation, decides to open a sales office in country F. USAco has a choice of operating in country F as: (Points : 3)

a branch only. a country F corporation only. either a branch in country F or a country F corporation. neither a branch in country F nor a country F corporation.

Question 2. 2.

USAco, a domestic corporation, decides to conduct business in the United Kingdom. USAco desires to limit its liability in the United Kingdom, but anticipates that the operations will take a long time (approximately ten years) before becoming profitable.

USAco should form:

(Points : 3)

a corporate entity in the United Kingdom. a branch in the United Kingdom. a reverse hybrid entity in the United Kingdom. a hybrid entity in the United Kingdom.

Question 3. 3. USAco, a domestic corporation, forms an entity called a Limitada in country F. Pursuant to country F law, the Limitada is not subject to country Fs corporate income tax, but provides limited liability to its owners, such as USAco. USAco never checks-the-box for Limitada. For U.S. tax purposes, Limitada is treated as: (Points : 3)

a corporation. a branch. a branch because it is not subject to country Fs corporate income tax. neither a branch nor a corporation.

Question 4. 4. USAco, a domestic corporation, would like to begin operating in country F, but country F forbids its corporations from having U.S. shareholders. Although USAco is not concerned with limited liability in foreign country F, USAco anticipates that the country F operations will be immediately profitable and USAco would prefer deferring any U.S. tax. The best form of entity for USAco to form in country F is: (Points : 3)

a hybrid entity. a reverse hybrid entity. neither a reverse hybrid entity nor a hybrid entity. either a reverse hybrid entity or a hybrid entity.

Question 5. 5. USAco, a domestic corporation, desires to export widgets to country F. Which of the following is not important to the way USAco structures its export sales? (Points : 3)

The passage of title in foreign country F. The permanent establishment rules in any applicable tax treaty between the U.S. and country F. Country F withholding tax on dividends. The method by which USAco sells in country F.

Question 6. 6. FORco, a foreign corporation, decides to open a sales offi ce in the United States. FORco has a choice of operating in the United States as: (Points : 3)

a branch only. a domestic corporation only. either a branch in the United States or a domestic corporation. neither a branch in the United States nor a domestic corporation.

Question 7. 7.

FORco, a foreign corporation, decides to conduct business in the United States. FORco desires to limit its liability in the United States, but anticipates that the operations will take a long time (approximately 10 years) before becoming profitable.

FORco should form:

(Points : 3)

a domestic corporation. a branch in the United States. a reverse hybrid entity in the United States. a hybrid entity in the United States.

Question 8. 8. FORco, a foreign corporation, wholly-owns a limited liability company (LLC) in the United States. Pursuant to U.S. law, the LLC is not subject to the U.S. corporate income tax, but provides limited liability to its owners, such as FORco. FORco never checks-the-box for the LLC. For U.S. tax purposes, the LLC is treated as: (Points : 3)

a corporation. a branch. a partnership. neither a branch nor a corporation.

Question 9. 9. FORco, a foreign corporation, desires to import widgets from its country F into the United States. Which of the following is not important to the way FORco structures its sales? (Points : 3)

The passage of title in the United States. The permanent establishment rules and any applicable tax treaty between the United States and country F. The U.S. withholding tax on dividends. The method by which FORco sells in the United States.

Question 10. 10. FORco, a foreign corporation, owns a profitable subsidiary in the United States. Which of the following best describes the various methods by which FORco may repatriate money from the United States? (Points : 3)

Dividends, debt financing, and royalties. Service fees and transfer pricing. None of the above. All of the above.

Question 11. 11. USAco, a domestic corporation, purchases musical instruments from its foreign parent, FORco, for $800 and resells them to U.S customers for $1,000. A search of available information for independent U.S. distributors of musical instruments shows that the independent U.S. distributors earn a profi t on resales (expressed as a percentage of the resale price) of 30%. Under the resale price method, the arms length price that USAco should pay FORco for musical instruments is: (Points : 3)

$1000. $900. $800. $700.

Question 12. 12. USAco, a domestic corporation, is a wholly-owned subsidiary of FORco, a foreign corporation. USAco purchases chemical supplies from FORco, and also pays FORco a royalty for the use of FORcos propriety pharmaceuticals. The only method USAco could use to determine the arms length price for both of these related party transactions is: (Points : 3)

the comparable profits method. the cost plus method. the resale price method. the comparable uncontrolled price method.

Question 13. 13. USAco, a domestic corporation, manufactures and sells widgets in the United States. USAco also sells widgets to its Canadian subsidiary, CANco, for resale in Canada. USAcos largest U.S. customer purchases 30% of USAcos output for $100 per widget. CANco also purchases 30% of USAcos output based on the same contracting terms as USAcos largest U.S. customer. The price USAco should charge CANco per widget under the comparable uncontrolled price method is: (Points : 3)

$100. $120. $80. $0.

Question 14. 14.

USAco, a domestic corporation, is the wholly-owned subsidiary of FORco, a foreign corporation. FORco manufactures automobiles at its manufacturing facilities abroad and then sells them to USAco for resale in the United States. With its Form 1120,

USAco must file a:

(Points : 3)

Form 1116. Form 1118. Form 5471. Form 5472.

Question 15. 15. USAco, a domestic corporation, is a wholly-owned subsidiary of a Japanese parent, ASIAco, which manufactures automobiles. During the current year, USAco pays $100 million for automobiles from ASIAco. If USAco fails to contemporaneously document its transfer pricing practices and the IRS makes an adjustment of $40 million, USAco is: (Points : 3)

subject to the transfer pricing penalty. not eligible to contemporaneously document its transfer pricing practices in future years. not subject to any transfer pricing penalty. not eligible for an advance pricing agreement.

Question 16. 16.

For questions 16 20, unless otherwise indicated, assume that the U.S. Model Income Tax Convention of November 15, 2006 (the Model Treaty) applies to each question.

Bill, a citizen of country F, is an illegal alien in the United States. Bill is 45 years old and has not lived in country F since he left F at the age of 18. Although his parents and most of his relatives still live in F, Bill lives in the U.S. where he has owned a home for 10 years. Under the Model Treaty, Bill is a resident of:

(Points : 3)

the U.S. country F. both the U.S. and country F. neither the U.S nor country F.

Question 17. 17. USAco, a domestic corporation, decides to expand its sales in country F by hiring a salesperson there. Neither USAco nor the salesperson lease commercial office space in country F. The salesperson makes sales calls while performing the necessary administrative paperwork in her office at her home in F. Under the Model Treaty: (Points : 3)

USAco is subject to tax in country F because the salespersons office constitutes a permanent establishment. USAco is not subject to tax in country F because the salespersons office does not constitute a permanent establishment. USAco is not subject to tax in country F because USAco is not engaged in a trade or business. None of the above.

Question 18. 18.

Peter, an employee of FORco, a foreign corporation, has never been physically present in the United States. He is a citizen and resident of foreign country F and has been employed as a petroleum engineer for the last six years. During the current year, FORco temporarily assigns Peter to the U.S. for five months for further training in U.S. refining procedures. He receives his usual salary and benefi ts from

FORco. With respect to U.S. tax compliance:

(Points : 3)

Peter is exempt from U.S. taxation as a business trainee under Article 20 of the Model Treaty. Peter is exempt from U.S. taxation under the Model Treaty because he is not a permanent establishment. Peter must pay U.S. tax under the Model Treaty because he is a permanent establishment. Peter is subject to U.S. taxation as a business trainee under Article 20 of the Model Treaty.

Question 19. 19. USAco, a domestic corporation, is a wholly-owned subsidiary of FORco, a foreign corporation. During the current year, USAco distributes a dividend of $100,000 to FORco and makes an interest payment of $100,000 to FORco. Under the Model Treaty, USAco must withhold total U.S. taxes of: (Points : 3)

$60,000. $5,000. $10,000. $35,000.

Question 20. 20. USAco wants to borrow money from HKco, a Hong Kong corporation. The U.S. does not have a tax treaty with Hong Kong, but both the U.S. and Hong Kong do have a treaty with country F that eliminates all withholding taxes. To avoid the 30 percent withholding tax that USAco must withhold on all interest payments to HKco, HKco forms FORco, a country F corporation, which will borrow the money from HKco and relend the money to USAco. This tax planning technique: (Points : 3)

will work due to the Non-Discrimination Article of the Model Treaty.

will work because of the Relief from Double Taxation Article of the Model Treaty.

will fail because of the Limitation on Benefits Article of the Model Treaty.

will fail because of the Permanent Establishment Article of the Model Treaty.

Question 21. 21.

USAco, a domestic corporation, operates a Canadian branch that loses a total of $100,000 during its fi rst three years of operations. At the start of its fourth year, USAco incorporates the branch as a Canadian corporation, CANco. During that fourth year, CANco earns $150,000, but does not distribute a dividend. On USAcos income tax return for its fourth year, USAco must report income from its Canadian operations of:

(Points : 3)

$0. $100,000. $150,000. $250,000.

Question 22. 22. USAco, a domestic corporation, distributes its widgets in foreign country F through a wholly-owned foreign subsidiary, FORco. FORco has $100,000 of accumulated earnings and profits and a fair market value of $200,000. During the current year, USAco liquidates FORco. The tax effect of the liquidation is: (Points : 3)

USAco does not have to include any income from the liquidation of a subsidiary. USAco must include $100,000 of income as a result of liquidating the subsidiary. USAco recognizes capital gain on liquidation of the subsidiary. USAco will never be eligible for any treaty benefits.

Question 23. 23. Creator, a U.S. person, invents the cure for cancer in his basement. Creator transfers the cure for cancer to a company in the Cayman Islands (CAYco), which does not have to pay any income tax under Cayman Islands law. For U.S. tax purposes, the transaction is treated as: (Points : 3)

a tax-free incorporation. a one-time sale by Creator to the Cayman Islands company. a sale in return for a series of annual royalty payments. none of the above.

Question 24. 24. Grandma, a U.S. person, is the only U.S. owner of USAco, owning 1 percent of USAco. In a hostile takeover, FORco exchanges its shares to USAcos shareholders in exchange for their shares in USAco. The FORco shares received greatly exceed Grandmas basis in her USAco shares. Must Grandma pay any U.S. tax on this transaction? (Points : 3)

Yes, because this is an outbound transfer and no exception applies to the outbound- toll charge. No, if the limited-interest exception applies. Yes, only if USAco has earnings and profits. Yes, only if FORco has earnings and profits.

Question 25. 25. Tony Miller, a U.S. person wholly-owns FORco. In a Type B share-for-share exchange, Tony exchanges all his shares of FORco for shares of a domestic corporation, USAcquiror. What are the tax implications of this transaction to Tony? (Points : 3)

The transaction is tax-free to Tony. Tony must report any gain on the exchange. Tony must include a dividend to the extent of the earnings and profits of FORco. None of the above.

Question 26. 26. USAco, a domestic corporation, fi led its return for year 1 on March 15 of year 2. The IRS is auditing USAcos year 1 return. USAco is recalcitrant and fails to respond to any request for information from the IRS, including the IRSs summons for information. If the IRS is concerned about the statute of limitations expiring without obtaining any information to make an assessment, the IRS will: (Points : 3)

issue USAco another summons.

issue USAco an information document request. issue USAco a formal document request. issue USAco a designated summons.

Question 27. 27. USAco, a domestic corporation, fi led its return for year 1 on March 15 of year 2. The IRS is auditing USAcos year 1 return. USAco is recalcitrant and fails to respond to any request for information from the IRS, including the IRSs summons for information. If the IRS issues USAco a formal document request and USAco fails to submit any of the requested documents: (Points : 3)

the statute of limitations automatically extends indefi nitely.

the IRS can force compliance of the formal document request in court. USAco cannot introduce any of the responsive documents at trial. the IRS must also issue a designated summons.

Question 28. 28. USAco, a domestic corporation, is the wholly-owned U.S. subsidiary of FORco, a foreign corporation. The IRS conducts a transfer pricing examination of USAcos purchase of widgets from FORco for resale in the United States. Under the requirements of Code Sec. 6038A, the IRS requests that USAco, as the agent of FORco, provide FORcos widget production costs. USAco fails to respond. As a result of USAco failure to respond: (Points : 3)

USAco must introduce the production cost records at trial. the statute of limitations extends indefinitely. the IRS may reduce USAcos cost of goods sold. USAco automatically incurs a transfer pricing penalty.

Question 29. 29. BIGco is a large domestic corporation subject to the IRSs Coordinated Examination Program. As a result, the IRS audits BIGco every year. Currently, BIGcos year 1 return is at trial in Tax Court due to transfer pricing adjustments. Because BIGco has been recalcitrant during the pretrial process, the IRS attorney talks to the large case manager on the current audit of BIGcos year 4 and year 5 taxable years and has her issue a summons for information the trial attorney needs. If the IRS seeks to use information acquired through the summons in Tax Court: (Points : 3)

the Tax Court will not enforce the summons. the Tax Court will issue a protective order prohibiting the IRS from using the information in Tax Court. the Tax Court will disbar the IRS trial attorney. the Tax Court will disbar the case manager.

Question 30. 30. USAco, a domestic corporation, sells widgets to its wholly-owned foreign subsidiary, FORco, for resale in country F. USAco charges FORco $17 for a widget that FORco resells for $21. The IRS makes a transfer pricing assessment, adjusting the price of a widget to what the IRS believes to be the arms length price of $20. In response to this assessment, USAco can: (Points : 3)

issue a designated summons. seek relief from double taxation from the U.S. competent authority only. seek relief from double taxation from the country F competent authority only. seek relief from double taxation from either the U.S. or country F competent authority