1.Assume that the aggregate worldwide income of U.S. corporations is $2.4 trillion (annually), of which $1.4 trillion is subject to the U.S. corporate income tax. The remainder is being held in foreign subsidiaries, and has not yet been subject to U.S. tax. Further assume an effective tax rate of 35 percent before credits.

Many policy makers believe that the reduction of the U.S. corporate tax rate to 21% will encourage U.S. multinationals' (MNCs') to "re-shore" their foreign earnings to the U.S. The extent to which this is true is unknown of course. However, for purposes of this problem assume that we project that a reduction in the corporate tax rate to 21 percent should increase the corporate tax base by $500 billion (i.e., half of "offshore" income will be "re-shored.")

Based on that assumption, what would be the estimated direct revenue impact of a reduction of this magnitude in the U.S. corporate income tax rate? That is, what would be the net reduction in corporate tax revenues before credits? (Note: your answer should be submitted in billions, using a minus sign to denote a negative estimated impactfor example, if you estimate that the change in tax rates would reduce federal corporate tax revenue by $11.5 billion, your answer should be formatted as -11.5).

2.Assume the same facts as in question 1. Further assume that a secondary (i.e., indirect) result of the increased corporate tax base would be an increase in corporate dividend payouts. By how much would dividends (to taxable investors) have to increase to make up for the revenue shortfall? Assume a 20% dividend tax rate, and format your answer as described in part a. (i.e., 11.5).

3.Of course, the "re-shoring" of corporate profits would also increase other kinds of taxable payments to individuals (e.g., salaries and wages). Which of the following statements isleast plausibleregarding the effect of these secondary payments?

a. Salaries and wages that were previously paid to individuals in other countries with respect to "re-shored" profits will generate additional tax revenues from the individual income tax and associated payroll and employment taxes (e.g., Social Security, Medicare, etc.). Thus, the static estimate of lost corporate tax revenues will be partially offset by increases in individual taxes.

b. If individuals consume the majority of increased salaries and wages received, the increased consumption will increase the profits of the businesses creating and selling the products being consumed. This "multiplier" effect will increase the overall corporate income tax base in the U.S.

c. Effect "b" above willbe incremental to the impact of effect "a" above.

d. Individuals are unlikely to consume their increased salaries and wages, but will instead use them to increase savings.

4.Q Corporation has reinvested $100 billion of foreign earnings in its Irish operations. Due to a change in economic conditions, its pre-tax Irish ROA has declined to 5 percent. Under pre-2018 tax law, it estimates that it would have had to pay $25 billion in U.S. tax to repatriate all of these earnings and profits to the U.S. What pre-tax return would the company have needed to earn in the U.S. to break even, after tax, on repatriation of its Irish E&P? In other words, what pre-tax return (ROA) would it have had to earn to generate as much income, after-tax, on the $75 billion to be reinvested in the U.S. as it would have earned on the $100 billion if it did not repatriate the earnings? Assume an Irish tax rate of 12.5% and a U.S. tax rate of 35%. Round your answer to 2 decimals and do not use the % sign. Note: answering this question requires a complex analysistake your time.

5. JDR Inc. has $100 million invested in country Z, which taxes corporate income at 20%. The investment in country Z generates a 7.5 percent return before tax and 6 percent after (computed as .8 * 7.5). JDR's home country imposes a 35 percent tax rate. What return would the company need to be able to generatebefore taxin its home country in order to earn the same after-tax return that it earns in country Z? (round your answer to 2 decimals and do not use the percent signe.g., 6.55) NOTE: This is a similar question to number 4 above. However, JDR is not reconsidering repatriation of its country Z earnings--it is merely trying to compare its returns in the U.S. vs. country Z.

6.In 2018, USCo acquired ForCo in a reverse acquisition. Under the terms of the acquisition, USCo issued 100 million new shares of its stock to ForCo in exchange for 150 million newly issued shares of ForCo stock. This brought the total number of ForCo shares outstanding to 200 million. USCO then transferred the 150 million shares of ForCo stock to its shareholders (other than ForCo) in exchange for all of their USCO shares. Thus, upon completion of the transaction, the original shareholders of USCO owned 150 million of the 200 million outstanding shares in ForCo and ForCo owned 100% of the outstanding shares of USCO. USCO is now a 100%-owned subsidiary of ForCo. Which of the following statements is true?

a. ForCo will be treated as a US corporation for 10 years following the reverse acquisition.

b. USCO will be treated as a foreign corporation following the reverse acquisition.

c. ForCo's tax status as a foreign corporation will be recognized for US tax purposes following the acquisition if it has substantial business activities in its country of incorporation.

d. None of the above statements are true.

7.Assume USCO establishes operations via a newly created corporation in a foreign country. The new entity will be treated as a corporation in the foreign country. However, for US tax purposes, it elected ("checked the box") to have the newly created foreign entity treated as a "disregarded entity." Which of the following statements is true?

a. The foreign entity will be treated as a foreign subsidiary of USCO for purposes of the US income tax.

b.The foreign entity will be treated as a flow-through entity for purposes of the US income tax.

c. Only US entities can elect to be treated as an entity other than a corporation for US income tax purposes.

d. The foreign entity must be treated the same for both US and foreign tax purposes.

8.US tax rules applicable to "outbound" investment apply to which kind of transaction?

a. A US corporation doing business in one or more foreign countries.

b. A foreign corporation doing business in the US.

c.Any corporation with income from sources outside the US.

d. Any corporation with income from sources inside the US.

9.ForCo has US source gross income of $20,000,000. It incurred expenses of $5,000,000 to generate this income. If the income is deemed to be from fixed or determinable annual or periodical gains, profits and income, how much US income tax will ForCo owe?

10.Hagar, Inc. is a Swiss corporation which manufactures and sells heavy construction equipment in a global market. Three years ago, it opened a facility in Houston through which it sells construction equipment. It keeps some equipment at the facility, with other equipment being special ordered.

Hagar also uses the facility for delivery and pickup of special-orders. In cases in which customers in Texas and surrounding states purchase such equipment through Hagar's primary sales office in Zurich, the company will ship the equipment to the Houston location where its Texas employees will be responsible for working with the customer to arrange for delivery and, sometimes, installation. For 2019, the Houston facility had the following revenues and expenses:

Sales to Texas | Sales to Mexican | Sales to Mexican

customers generated |customers generated | customers generated by

by Houston office |by Houston office | Zurich office and facilitated

| | by Houston office

Sales $75,000,000 | $20,000,000 | $50,000,000

Cost of goods sold (44,000,000) | (12,000,000) | (32,000,000)

Selling expenses (10,000,000) | (3,000,000) | (8,500,000)

Administrative expenses (1,250,000) | (312,500) | (1,500,000)

Income before taxes $19,750,000 | $4,687,500 | $8,000,000

How much will Hagar report as US taxable income with respect to the operations of its Houston facility?