Question 1.1. Don is a citizen of Great Britain and a famous race car driver. He decides to come to the U.S. to open a car dealership in Detroit. Don does not obtain a green card or U.S. citizenship, but he procures a visa to work in the U.S. He is in the U.S. during the following periods: 2008: April 1 through August 1 2009: June 1 through August 1 (Points : 3) Resident alien under the green card test. Nonresident alien. Resident alien under the substantial presence test. Citizen of the U.S. Question 2.2. Don is a citizen of Great Britain and a famous race car driver. He decides to come to the U.S. to open a car dealership in Detroit. He is in the U.S. during the following periods: 2008: April 1 through August 1 2009: March 1 through August 1 Which of the following best describes Dons status? (Points : 3) Resident alien under the green card test. Nonresident alien. Resident alien under the substantial presence test. Citizen of the U.S. Question 3.3. USAco expands its operations to foreign country F. During the current taxable year, USAcos country F operations have a net profit of $100,000. USAco retains the earnings in foreign country F. On its Form 1120 for the current taxable year, USAco will report net profit from its foreign operations of: (Points : 3) $100,000 if the foreign operations are conducted as a branch and $0 if the foreign operations are conducted as a subsidiary. $0 if the foreign operations are conducted as a branch and $100,000 if the operations are conducted as a subsidiary. $0, regardless of whether the foreign operations are conducted as a subsidiary or a branch. $100,000, regardless of whether the foreign operations are conducted as a subsidiary or a branch. Question 4.4. During calendar years 2008 and 2009, Chris, a U.S. citizen, works for XYZ Corporation, earning an annual salary of $100,000. From July 1, 2008 through June 30, 2009, Chris works in XYZs Paris office, and is a bona fide French resident. During 2009, Chris is entitled to a foreign earned income exclusion of: (Points : 3) $0. $45,700. $91,400. $100,000. Question 5.5. USAco loans $100,000 to Toni, a U.S. citizen and resident. Interest of $10,000 is payable annually on December 31 of each year. Toni is physically present in Mexico on December 31, 2009 when he pays the interest. The interest income is: (Points : 3) U.S. source because USAco is a domestic corporation. U.S. source because Toni is a U.S. resident. sourced under the 50-50 method. foreign source because Toni is physically present in Mexico on December 31 when the interest is paid. Question 6.6. FORco pays a dividend from a U.S. bank account to Sam, a U.S. citizen who resides in the U.S. The dividend is: (Points : 3) foreign source because the payer is a foreign corporation. U.S. source because the payment is made in the U.S. U.S. source because the recipient is a U.S. citizen. foreign source because the money was earned in foreign country F. Question 7.7. USAco purchases merchandise in the U.S. that it resells in Canada. Title passes in Canada. The gross profits from these sales are: (Points : 3) foreign source because title passes in Canada. U.S. source because the seller is a domestic corporation. U.S. source because the merchandise was purchased in the U.S. sourced under the 50-50 method. Question 8.8. USAco manufactures merchandise in the U.S. that it then sells in Canada. Title passes in Canada. The gross profit from these sales is: (Points : 3) foreign source because title passes in Canada. U.S. source because the seller is a domestic corporation. U.S. source because the merchandise was manufactured in the U.S. sourced under the 50-50 method. Question 9.9. USAco operates two lines of business. The first business is concession sale at U.S. baseball stadiums games, which generate annual gross revenues of $1 million. The second line of business is concession sales at German professional soccer games, which generate annual gross revenues of $4 million. Each year, USAcos combined general and administrative expenses for both businesses total $500,000 annually. These expenses should be allocated: (Points : 3) all to U.S. source income. all to foreign source income. $250,000 to U.S. source income and $250,000 to foreign source income. $100,000 to U.S. source income and $400,000 to foreign source income. Question 10.10. USAco, a domestic corporation, operates a branch in foreign country F. Under country F tax laws, taxable income equals gross receipts received in country F by deductions for significant costs and expenses incurred to produce the gross receipts. But Country F law requires that all taxpayers capitalize instead of currently deduct administrative costs. The tax that country F imposes: (Points : 3) may be creditable because the tax passes the net-income test. is not creditable because the tax does not pass the net-income test. is not creditable. is creditable. Question 11.11. USAco, a domestic corporation, operates a branch in foreign country F. USAcos sole source of income is the branchs net profit of $200,000, and USAco pays $100,000 of creditable country F income taxes. USAcos pre-credit tax liability is $70,000. The maximum amount of the foreign tax credit is: (Points : 3) $100,000. $30,000. $70,000. none of the above. Question 12.12. USAco, a domestic corporation, is in the 35% income tax bracket. USAco earns $100,000 of U.S. source income and $100,000 of foreign source income. USAcos foreign tax credit limitation is: (Points : 3) $35,000. $17,500. $100,000. $70,000. Question 13.13. SMALLco is a domestic corporation that has elected S corporation status. SMALLco wholly owns a Canadian corporation, CANco. CANco earns $100,000 of income during the year and pays $40,000 in Canadian income taxes. CANco distributes a $60,000 dividend to SMALLco. The Canadian income taxes of $40,000 are eligible to be taken as a foreign tax credit by: (Points : 3) SMALLco. shareholders of SMALLco. both SMALLco and SMALLcos shareholders. neither SMALLco nor its shareholders. Question 14.14. U.S. persons Larry, Curly, and Moe each own 15 percent of a foreign corporation and Shemp owns 8 percent of the foreign corporation. Unrelated foreign persons owns the remaining 47 percent of the foreign corporation. The foreign corporation is: (Points : 3) a controlled foreign corporation. not a controlled foreign corporation. both of the above. neither of the above. Question 15.15. USAco, a domestic corporation, sells widgets throughout Europe. USAco forms CAYco, a Cayman Islands corporation. The Cayman Islands does not have a corporate income tax. CAYco engages independent contractors to provide repair services to USAcos European customers. USAco pays CAYco for these services. The income of CAYco is: (Points : 3) foreign base company sales income. foreign personal holding company income. foreign base company oil-related income. foreign base company services income. Question 16.16. Grandma, a U.S. person, buys 1 percent of HONGco, a Hong Kong corporation that invests in shares of company on the Hong Kong stock exchange. No other U.S. persons own shares of HONGco. HONGco is: (Points : 3) a passive foreign investment company. a controlled foreign corporation. both a passive foreign investment company and a controlled foreign corporation. neither a passive foreign investment company nor a controlled foreign corporation. Question 17.17. USAco, a domestic corporation, has a cost basis of $100,000 in its stock of FORco, a wholly-owned country X corporation. FORco has earnings and profits of $500,000. USAco sells FORcos stock to an unrelated party for $1 million. The tax effect of the transaction is: (Points : 3) USAco has a dividend of $900,000. USAco has capital gain of $900,000. USAco does not have to report any income from the transaction. USAco has $400,000 of gain and a dividend of $500,000. Question 18.18. USAco, a domestic corporation, sells widgets in the United States. USAcos foreign subsidiary, FORco, sells widgets in foreign country F. USAco has a Canadian sales branch that markets widgets in Canada. USAco and its foreign activities include: (Points : 3) three qualified business units. two qualified business units. one qualified business unit. no qualified business units. Question 19.19. USAco, a domestic corporation, sells widgets in the U.S. USAco has a French subsidiary, FRANco, that sell widgets only in France. FRANco receives payment in euros for 90 percent of its sales, with the remaining 10 percent of its sales resulting in the receipt of British pounds. The functional currency of: (Points : 3) USAco is the dollar and FRANco is the euro. USAco is the euro and FRANco is the dollar. both USAco and FRANco is the dollar. USAco is the dollar and FRANco is a proportionate amount of euros and pounds. Question 20.20. USAco, a domestic corporation, has a branch in Canada. The Canadian branch pays C$100,000 of Canadian income taxes during the taxable year. At the beginning of the taxable year, $1 U.S. was worth C$1.75. At the end of the taxable year, $1 U.S. was worth C$1.25. During the taxable year, the exchange rate averaged $1 U.S. to C$1.50. For foreign tax credit purposes, USAcos has paid foreign taxes in U.S. dollars of: (Points : 3) $57,143. $66,667. $80,000. $100,000. Question 21.21. USAco, a domestic corporation, operates a Canadian subsidiary, CANco. At the end of year one, CANco has earnings and profi ts of C$100,000. On January 1 of year two, CANco distributes C$100,000 to USAco. On January 1 of year one, $1 U.S. was worth C$1.75. On January 1 of year 2, $1 U.S. was worth C$1.25. During year one, the exchange rate averaged $1 U.S. to C$1.50. Ignoring any gross-up under the deemed paid credit, the amount of income USAco reports as a dividend in U.S. dollars is: (Points : 3) $57,143. $66,667. $80,000. $100,000. Question 22.22. On January 1, 2009, USAco, a domestic corporation, acquires 10,000. On January 15, 2009, USAco uses the 10,000 to purchase inventory. USAco has a Code Sec. 988 transaction from: (Points : 3) the acquisition of the 10,000. the disposition of the 10,000. both the acquisition and disposition of the 10,000. neither the acquisition nor the disposition of 10,000. Question 23.23. Rick Rocker, a citizen and resident of country F, decides to perform a concert in Los Angeles. The U.S. promoter has agreed to pay Rocker $1 million. Rocker himself incurs $200,000 of expenses in connection with the concert. When the promoter pays Rocker his fee, the promoter: (Points : 3) should withhold $300,000 of U.S. tax. does not have to withhold any U.S. tax. must withhold tax at Rockers marginal rates. should withhold $240,000 of U.S. tax. Question 24.24. USAco, a domestic corporation owned by U.S. persons, borrows money from FORco, a foreign corporation that is not a bank, and makes a $10,000 interest payment to FORco. USAco must withhold tax of: (Points : 3) $0. $10,000. $30,000. $100,000. Question 25.25. 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: (Points : 3) 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 for interest on bank deposits. does not have to withhold any tax because the interest constitutes income derived by a foreign central bank from the issuance of bankers acceptances. Question 26.26. 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? (Points : 3) 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 percent of the sales price. FIRPTA imposes a withholding tax equal to 30 percent of the sales price. Question 27.27. 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 Tonys horse racing activities constitute the conduct of a U.S. trade or business, his effectively connected income consists of: (Points : 3) 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 28.28. FORco 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: (Points : 3) the withholding tax on dividends only. the branch profits tax only. both the withholding tax on dividends and the branch profi ts tax. transfer pricing penalties. Question 29.29. USAcos only item of gross income is $100,000 from sales of widgets in the United States. Its only expense is a $60,000 interest payment to its parent, FORco, its country F parent. The tax treaty between the U.S. and country F exempts interest payments from withholding tax. If USAcos debt to equity ratio exceeds 1.5 to 1, the amount of interest that USAco can deduct is: (Points : 3) $50,000. $60,000. $10,000. $0. Question 30.30. FORco 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. (Points : 3) FORco must f le a Form 1120F and the nonresident alien must file a Form 1040NR. 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.