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Exam 13: Jurisdictional Issues in Business Taxation

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Question 21

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Lincoln Corporation,a U.S.corporation,owns 50% of the stock of a controlled foreign corporation (CFC) .At the beginning of the year,Lincoln's basis in its CFC stock was $100,000.The CFC's current year income was $1 million,$600,000 of which was subpart F income.The CFC paid no foreign income tax and distributed no dividends.What is Lincoln's tax basis in its CFC stock at the end of the taxable year?

A) $100,000
B) $300,000
C) $400,000
D) $0

E) B) and C)
F) All of the above

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Question 22

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Which of the following could result in a corporation having more than 100% of its income subject to state taxation?

A) Some of the states in which the corporation conducts business have not adopted the Uniform Division of Income for Tax Purposes Act formula.
B) The states in which the corporation conducts business have adopted different definitions of the specific components of the UDITPA formula.
C) Some of the states in which the corporation conducts business strictly apply the UDITPA formula while others double-weight the sales factor.
D) All of these factors could result in a corporation having more than 100% of its income subject to state taxation.

E) A) and D)
F) None of the above

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Question 23

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Which of the following activities create state income tax nexus?

The UDITPA formula for state income tax apportionment consists of three factors: sales,payroll,and profit.

For dividends received prior to 2018,the deemed paid foreign tax credit treats a U.S.corporation that receives a foreign source dividend as if the corporation paid tax directly to a foreign jurisdiction.

The UDITPA formula for apportioning income among states is based on four equally weighted factors.

The United States taxes its citizens on their worldwide incomes.

Excess foreign tax credits can only be carried to future tax years.

Jenkin Corporation reported the following for its first two taxable years.Assume that the tax rates for both the years are the same. Calculate Jenkin's U.S.tax liability for Year 2.

Orchid Inc.,a U.S.multinational with a 21% marginal tax rate,owns a foreign subsidiary operating in a country with a 15% income tax.This year,the subsidiary generated $400,000 taxable income.What is the total tax burden (domestic and foreign) on the earnings of the foreign subsidiary if it does not repatriate its after-tax earnings and has no subpart F income?

Verdi Inc.has before-tax income of $500,000.Verdi operates entirely in state Q,which has a 10% corporate income tax.Compute Verdi's combined federal and state tax burden as a percentage of its before-tax income.

Which of the following statements about subpart F income is false?

If a corporation with a 21% marginal federal income tax rate pays $20,000 state income tax,the after-tax cost of the state tax is $15,800.

Lincoln Corporation,a U.S.corporation,owns 50% of the stock of a controlled foreign corporation (CFC) .At the beginning of the year,Lincoln's basis in its CFC stock was $100,000.The CFC's current-year income was $1 million,$600,000 of which was subpart F income.The CFC paid no foreign income tax and distributed no dividends.How much current taxable income must Lincoln report as a result of its ownership of the CFC?

Tri-State's,Inc.operates in Arkansas,Oklahoma,and Kansas.Assume that each state has adopted the UDITPA formula.During the corporation's tax year ended December 31,the apportionment data indicated: Tri-State's income for the current year is $250,000.Approximately how much income will be taxed by Oklahoma?

Multi-State,Inc.does business in two states.Its apportionment percentage in state A is 63%.Its apportionment percentage in the other state can be no more than 37%.

In which of the following cases are the U.S.shareholders in a controlled foreign corporation (CFC) avoiding U.S.tax on the CFC's income?

The foreign tax credit is available only for foreign income,excise,value-added,sales,property and transfer taxes.

Fallon Inc.,a U.S.corporation,owns stock in several foreign corporations.This year,Fallon received $420,000 as a dividend from Mars Corporation,and $225,000 as a dividend from Jupiter Inc.Mars is a foreign corporation in which Fallon has owned 8 percent of the outstanding stock for ten years.Jupiter is a foreign corporation in which Fallon has owned 17 percent of the outstanding stock for two years.Compute Fallon's allowable dividends-received deduction for these foreign dividends.

If Gamma Inc.is incorporated in Ohio and has its commercial domicile in Cleveland,the state of Ohio has jurisdiction to tax 100% of Gamma's business income.