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MC Quiz
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1
Which of the following statements regarding taxation of foreign operations is true?
A)The United States taxes foreign corporations on their worldwide income.
B)The foreign tax credit can be used to eliminate double-taxation of foreign earnings.
C)US corporations can claim a foreign tax credit for all types of foreign taxes paid.
D)All of the above statements are true.
2
This year Mike Inc., a foreign subsidiary, paid all of its after-tax income, $475,000, as a dividend to its parent, a U.S. corporation. Mike paid $142,500 of income taxes to the foreign country. The parent's U.S. tax rate is 34%. How much is the parent's allowable foreign tax credit?
A)$142,500
B)$67,450
C)$0
D)$161,500
3
Which of the following statements concerning the physical nexus necessary for a state to tax income is false?
A)Nebraska will have nexus on mail-order sales if the company has stores located in Nebraska malls.
B)Company-owned trucks passing through Oregon to service customers in Washington create nexus in Oregon.
C)A company has no nexus if its only activity within a state is the solicitation of sales of tangible products.
D)A company will have nexus in California because its corporate headquarters is located in San Francisco.
4
Which of the following statements concerning income tax treaties is false?
A)An income-tax treaty is a bilateral agreement between the governments of two countries defining and limiting each country’s respective tax jurisdiction.
B)Under a typical treaty, a firm’s profits would be allocated to the countries in a manner similar to the apportionment of income among states under the UDITPA formula.
C)Under a typical treaty, the nonresident country would tax a firm’s profits only if the firm maintained a permanent establishment in that country.
D)The provisions of income-tax treaties pertain only to individuals and corporations that are residents of either country.
5
Which of the following organizational forms is not commonly used by corporations for overseas operations?
A)Foreign partnership
B)Foreign S corporation
C)Domestic corporate subsidiary
D)Foreign corporate subsidiary
6
Which of the following entities is not subject to U.S. federal income tax?
A)US corporation doing 100 percent of its business outside the United States
B)Branch of US corporation operating entirely in Germany
C)French subsidiary of US parent operating entirely in France
D)Dutch corporation operating within the United States
7
Which of the following statements regarding controlled foreign corporations is true?
A)Controlled foreign corporations are taxable by the United States on their worldwide income.
B)US shareholders are taxable on any income earned by the controlled foreign corporation.
C)US shareholders are never taxable on income earned by a controlled foreign corporation until the income is distributed to the shareholders.
D)US shareholders of a controlled foreign corporation can increase their basis by the amount of any constructive distributions from the corporation.
8
In determining the portion of a firm's total income subject to a state's income tax, most states use an apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).
A)True
B)False
9
Multi-state businesses can reduce their overall tax cost to the extent that they can shift income from a low-tax state to a high-tax state.
A)True
B)False
10
The foreign tax credit is available only for foreign income, excise, value-added, sales, property, and transfer taxes.
A)True
B)False







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