Project questionaire.

Question 1

FORco, a foreign corporation, wants to open a sales office in the United States. Because FORco does not want to be subject to any withholding tax on dividends, FORco does not form a U.S. subsidiary, but instead operates in the U.S. as a branch. If the U.S. sales office is profitable and distributes cash, FORco may be subject to:

the withholding tax on dividends only.

the branch profits tax only.

both the withholding tax on dividends and the branch profits tax.

neither the withholding tax on dividends nor the branch profits tax.

Question 2

FORco, a foreign corporation, opens a sales office in the U.S. and assigns a nonresident alien to manage the sales office and make sales calls for five months before returning back to her home country.

FORco must file a Form 1120F and the nonresident alien must file a Form1040NR.

FORco does not have to file a Form 1120F and the nonresident alien does not have to file a Form 1040NR.

FORco must file a Form 1120F, but the nonresident alien does not have to file a Form 1040NR.

FORco does not have to file a Form 1120F, but the nonresident alien must file a Form 1040NR.

Question 3

Tony, a nonresident alien, owns and breeds race horses. Tony enters his star horse in the Kentucky Derby, the Preakness Stakes and the Belmont Stakes. Tony's U.S. activities:

are not subject to tax in the U.S. because they do not constitute a permanent establishment.

are not subject to tax in the U.S. because they do not constitute being engaged in a trade or business.

are subject to tax in the U.S. because they constitute being engaged in a trade or business.

result in Tony becoming a resident alien.

Question 4

Tony, a nonresident alien, owns and breeds race horses. Tony enters his star horse in the Kentucky Derby, the Preakness Stakes and the Belmont Stakes, where he wins some purses. While in the United States, Tony buys and sells 100 shares of Proctor & Gamble stock for a tidy profit. Assuming Tony's horse racing activities constitute the conduct of a U.S. trade or business, his effectively connected income consists of:

only the gain on the sale of stock.

only the winnings from the horse races.

both the gain on the sale of stock and the winnings from the horse races.

neither the gain on the sale of stock nor the winnings from the horse races.

Question 5

Bill, a citizen of country F, lives in the United States. Bill is 45 years old and has not lived in country F since he left for the U.S. at the age of 18. Although many of his relatives still live in F, Bill lives in the U.S., where he has owned a house for 20 years. Bill is:

a resident of the U.S.

a citizen of the U.S.

both a resident and citizen of the U.S.

a resident of neither the U.S nor foreign country F.

Question 6

USAco, a domestic corporation owned by U.S. persons, borrows money from FORco, a foreign corporation that is not a bank. USAco makes a $10,000 interest payment to FORco. USAco must withhold tax of:

$0.

$10,000.

$30,000.

$100,000.

Question 7

Norma, a nonresident alien, deposits $100,000 in a savings account at a U.S. bank. When the U.S. bank pays interest to Norma, it:

must withhold tax at a rate of 30%.

does not have to withhold any tax because of the portfolio interest exemption.

does not have to withhold any tax because the interest is paid on a bank deposit.

must withhold tax at a rate of 10%.

Question 8

Norma, a nonresident alien, owns a winter house in Florida. Norma sells the home for $250,000 to a U.S. citizen who will use the house as a personal residence. Which of the following best describes the application of FIRPTA?

FIRPTA applies because a residence is a U.S. real property interest.

FIRPTA does not apply to sales of personal residence for less than $300,000.

FIRPTA imposes a withholding tax equal to 10% of the sales price.

FIRPTA imposes a withholding tax equal to 30% of the sales price.

Question 9

Note:Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of

November 15, 2006 (the "Model Treaty").

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

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 10

Note:Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of

November 15, 2006 (the "Model Treaty").

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:

USAco is subject to tax in country F because the salesperson's office constitutes a permanent establishment.

USAco is not subject to tax in country F because the salesperson's 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 11

Note:Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of

November 15, 2006 (the "Model Treaty").

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:

$60,000.

$5,000.

$10,000.

$35,000.

Question 12

Note:Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of

November 15, 2006 (the "Model Treaty").

USAco, a domestic corporation, is a wholly-owned subsidiary of 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% 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:

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

will work because of the Relief from Double Taxation Article of the ModelTreaty.

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 13

BIGco is a large domestic corporation subject to the IRS's Coordinated Examination Program. As a result, the IRS audits BIGco every year. Currently, BIGco's 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 BIGco's 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:

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 14

USAco, a domestic corporation, filed its return for year 1 on March 15 of year 2. The IRS is auditing USAco's year 1 return. USAco is recalcitrant and fails to respond to any request for information from the IRS, including the IRS's 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 issue USAco:

another summons.

an information document request.

a formal document request.

a designated summons.

Question 15

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 arm's length price of $20. In response to this assessment, USAco can:

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.

Question 16

Tony, a U.S. citizen, owns 100% of the stock of FORco, a foreign corporation. In a Type B reorganization, Tony exchanges all his shares of FORco for shares of a domestic corporation, USAcquiror. What are the tax implications of this transaction to Tony?

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 17

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:

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 18

USAco, a domestic corporation, distributes its widgets in country F through a wholly-owned foreign subsidiary, FORco. During the current year, USAco liquidates FORco. At the time of the liquidation, FORco has $100,000 of accumulated earnings and profits, and total assets worth $200,000. USAco has a $40,000 basis in the stock of FORco. What are the tax consequences of the liquidation for USAco?

USAco does not recognize any income.

USAco recognizes a $100,000 dividend.

USAco recognizes a $160,000 capital gain.

USAco recognizes a $100,000 dividend and a $60,000 capital gain.

Question 19

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 FORco's propriety pharmaceuticals. The only method USAco could use to determine the arm's length price for both of these related party transactions is:

the comparable profits method.

the cost plus method.

the resale price method.

the comparable uncontrolled price method.

Question 20

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. USAco's largest U.S. customer purchases 30% of USAco's output for $100 per widget. CANco also purchases 30% of USAco's output based on the same contracting terms as USAco's largest U.S. customer. The price USAco should charge CANco per widget under the comparable uncontrolled price method is:

$100.

$120.

$80.

$0.

Question 21

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:

Form 1116.

Form 1118.

Form 5471.

Form 5472.

Question 22

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 profit on resales (expressed as a percentage of the resale price) of 30%. Under the resale price method, the arm's length price that USAco should pay FORco for musical instruments is:

$1000.

$900.

$800.

$700.

Question 23

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?

Dividends, debt financing, and royalties.

Service fees and transfer pricing.

None of the above.

All of the above.

Question 24

FORco, a foreign corporation, decides to open a sales office in the United States. FORco has a choice of operating in the United States as:

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 25

FORco, a country F corporation, desires to import widgets from country F into the United States, while avoiding U.S. tax on the business profits from widget sales. Which of the following is not important to the manner in which FORco structures its sales?

The passage of title in the United States.

The permanent establishment provisions found in the U.S.-Country F tax treaty.

The U.S. withholding tax on dividends.

Whether FORco markets its widgets in the U.S. using independent agents or employee salespersons

Question 1 FORco, a foreign corporation, wants to open a sales office in the United States. Because FORco does not want to be subject to any withholding tax on dividends, FORco does not form a U.S. subsidiary, but instead operates in the U.S. as a branch. If the U.S. sales office is profitable and distributes cash, FORco may be subject to: the withholding tax on dividends only. the branch profits tax only. both the withholding tax on dividends and the branch profits tax. neither the withholding tax on dividends nor the branch profits tax. Question 2 FORco, a foreign corporation, opens a sales office in the U.S. and assigns a nonresident alien to manage the sales office and make sales calls for five months before returning back to her home country. FORco must file a Form 1120F and the nonresident alien must file a Form1040NR. FORco does not have to file a Form 1120F and the nonresident alien does not have to file a Form 1040NR. FORco must file a Form 1120F, but the nonresident alien does not have to file a Form 1040NR. FORco does not have to file a Form 1120F, but the nonresident alien must file a Form 1040NR. Question 3 Tony, a nonresident alien, owns and breeds race horses. Tony enters his star horse in the Kentucky Derby, the Preakness Stakes and the Belmont Stakes. Tony's U.S. activities: are not subject to tax in the U.S. because they do not constitute a permanent establishment. are not subject to tax in the U.S. because they do not constitute being engaged in a trade or business. are subject to tax in the U.S. because they constitute being engaged in a trade or business. result in Tony becoming a resident alien. Question 4 Tony, a nonresident alien, owns and breeds race horses. Tony enters his star horse in the Kentucky Derby, the Preakness Stakes and the Belmont Stakes, where he wins some purses. While in the United States, Tony buys and sells 100 shares of Proctor & Gamble stock for a tidy profit. Assuming Tony's horse racing activities constitute the conduct of a U.S. trade or business, his effectively connected income consists of: only the gain on the sale of stock. only the winnings from the horse races. both the gain on the sale of stock and the winnings from the horse races. neither the gain on the sale of stock nor the winnings from the horse races. Question 5 Bill, a citizen of country F, lives in the United States. Bill is 45 years old and has not lived in country F since he left for the U.S. at the age of 18. Although many of his relatives still live in F, Bill lives in the U.S., where he has owned a house for 20 years. Bill is: a resident of the U.S. a citizen of the U.S. both a resident and citizen of the U.S. a resident of neither the U.S nor foreign country F. Question 6 USAco, a domestic corporation owned by U.S. persons, borrows money from FORco, a foreign corporation that is not a bank. USAco makes a $10,000 interest payment to FORco. USAco must withhold tax of: $0. $10,00 0. $30,00 0. $100,0 00. Question 7 Norma, a nonresident alien, deposits $100,000 in a savings account at a U.S. bank. When the U.S. bank pays interest to Norma, it: must withhold tax at a rate of 30%. does not have to withhold any tax because of the portfolio interest exemption. does not have to withhold any tax because the interest is paid on a bank deposit. must withhold tax at a rate of 10%. Question 8 Norma, a nonresident alien, owns a winter house in Florida. Norma sells the home for $250,000 to a U.S. citizen who will use the house as a personal residence. Which of the following best describes the application of FIRPTA? FIRPTA applies because a residence is a U.S. real property interest. FIRPTA does not apply to sales of personal residence for less than $300,000. FIRPTA imposes a withholding tax equal to 10% of the sales price. FIRPTA imposes a withholding tax equal to 30% of the sales price. Question 9 Note: Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of November 15, 2006 (the \"Model Treaty\"). 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 benefits from FORco. With respect to U.S. tax compliance: 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 10 Note: Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of November 15, 2006 (the \"Model Treaty\"). 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: USAco is subject to tax in country F because the salesperson's office constitutes a permanent establishment. USAco is not subject to tax in country F because the salesperson's 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 11 Note: Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of November 15, 2006 (the \"Model Treaty\"). 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: $60,00 0. $5,000. $10,00 0. $35,000. Question 12 Note: Unless otherwise indicated, assume that the U.S. Model Income Tax Convention of November 15, 2006 (the \"Model Treaty\"). USAco, a domestic corporation, is a wholly-owned subsidiary of 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% 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: will work due to the Non-Discrimination Article of the Model Treaty. will work because of the Relief from Double Taxation Article of the ModelTreaty. 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 13 BIGco is a large domestic corporation subject to the IRS's Coordinated Examination Program. As a result, the IRS audits BIGco every year. Currently, BIGco's 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 BIGco's 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: 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 14 USAco, a domestic corporation, filed its return for year 1 on March 15 of year 2. The IRS is auditing USAco's year 1 return. USAco is recalcitrant and fails to respond to any request for information from the IRS, including the IRS's 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 issue USAco: another summons. an information document request. a formal document request. a designated summons. Question 15 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 arm's length price of $20. In response to this assessment, USAco can: 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. Question 16 Tony, a U.S. citizen, owns 100% of the stock of FORco, a foreign corporation. In a Type B reorganization, Tony exchanges all his shares of FORco for shares of a domestic corporation, USAcquiror. What are the tax implications of this transaction to Tony? 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 17 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: 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 18 USAco, a domestic corporation, distributes its widgets in country F through a wholly-owned foreign subsidiary, FORco. During the current year, USAco liquidates FORco. At the time of the liquidation, FORco has $100,000 of accumulated earnings and profits, and total assets worth $200,000. USAco has a $40,000 basis in the stock of FORco. What are the tax consequences of the liquidation for USAco? USAco does not recognize any income. USAco recognizes a $100,000 dividend. USAco recognizes a $160,000 capital gain. USAco recognizes a $100,000 dividend and a $60,000 capital gain. Question 19 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 FORco's propriety pharmaceuticals. The only method USAco could use to determine the arm's length price for both of these related party transactions is: the comparable profits method. the cost plus method. the resale price method. the comparable uncontrolled price method. Question 20 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. USAco's largest U.S. customer purchases 30% of USAco's output for $100 per widget. CANco also purchases 30% of USAco's output based on the same contracting terms as USAco's largest U.S. customer. The price USAco should charge CANco per widget under the comparable uncontrolled price method is: $10 0. $12 0. $80. $0. Question 21 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: Form 1116. Form 1118. Form 5471. Form 5472. Question 22 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 profit on resales (expressed as a percentage of the resale price) of 30%. Under the resale price method, the arm's length price that USAco should pay FORco for musical instruments is: $100 0. $900 . $800 . $700 . Question 23 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? Dividends, debt financing, and royalties. Service fees and transfer pricing. None of the above. All of the above. FORco, a foreign corporation, decides to open a sales office in the United States. FORco has a choice of operating in the United States as: 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 25 FORco, a country F corporation, desires to import widgets from country F into the United States, while avoiding U.S. tax on the business profits from widget sales. Which of the following is not important to the manner in which FORco structures its sales? The passage of title in the United States. The permanent establishment provisions found in the U.S.-Country F tax treaty. The U.S. withholding tax on dividends. Whether FORco markets its widgets in the U.S. using independent agents or employee salespersons