Distinguish between a definitely related deduction and a not definitely related deduction in the allocation and apportionment of deductions to foreign source taxable income.
> Financial information related to Udder Products Company, a proprietorship, for the month ended April 30, 2019, is as follows: Net income for April …………………………………………………. $166,000 Mark Kominksy’s withdrawals during April ……………………. 25,000 Mark Kominksy’s cap
> Seth Feye established Reliance Financial Services on July 1, 2019. Reliance Financial Services offers financial planning advice to its clients. The effect of each transaction and the balances after each transaction for July follow: Instructions 1. Prep
> From the following list of selected items taken from the records of Rosewood Appliance Service as of a specific date, identify those that would appear on the balance sheet: 1. Accounts Payable 2. Accounts Receivable 3. Andrew King, Capital 4. Cash 5. Fee
> Terry Fleming is the owner and operator of Go-For-It LLC, a motivational consulting business. At the end of its accounting period, December 31, 2018, Go-For-It has assets of $675,000 and liabilities of $215,000. Using the accounting equation, determine t
> Four different proprietorships, Jupiter, Mars, Saturn, and Venus, show the same balance sheet data at the beginning and end of a year. These data, exclusive of the amount of owner’s equity, are summarized as follows: On the basis of t
> Using the income statement for Adventure Travel Service shown in Practice Exercise 1-4A, prepare a statement of owner’s equity for the year ended April 30, 2019. Jerome Foley, the owner, invested an additional $60,000 in the business during the year and
> The amounts of the assets and liabilities of Nordic Travel Agency at December 31, 2019, the end of the year, and its revenue and expenses for the year follow. The capital of Ian Eisele, owner, was $670,000 on January 1, 2019, the beginning of the year. D
> Teri West operates her own catering service. Summary financial data for July are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in ownerâ
> The following selected transactions were completed by Silverado Delivery Service during February: 1. Received cash from owner as additional investment, $25,000. 2. Purchased supplies for cash, $750. 3. Paid rent for February, $3,000. 4. Paid advertising
> Annie Rasmussen is the owner and operator of Go44, a motivational consulting business. At the end of its accounting period, December 31, 2018, Go44 has assets of $720,000 and liabilities of $180,000. Using the accounting equation and considering each cas
> a. A vacant lot acquired for $115,000 is sold for $298,000 in cash. What is the effect of the sale on the total amount of the seller’s (1) Assets, (2) Liabilities, and (3) Owner’s equity? b. Assume that the seller owes $80,000 on a loan for the land. Aft
> Describe how the following business transactions affect the three elements of the accounting equation: a. Invested cash in business. b. Paid for utilities used in the business. c. Purchased supplies for cash. d. Purchased supplies on account. e. Received
> The following data were taken from Alvarado Company’s balance sheet: a. Compute the ratio of liabilities to owner’s equity. b. Has the creditor’s risk increased or decreased from December 31, 2018,
> The following data were taken from Mesa Company’s balance sheet: a. Compute the ratio of liabilities to owner’s equity. b. Has the creditor’s risk increased or decreased from December 31, 2018, to D
> Indicate whether each of the following is identified with (1) An asset, (2) A liability, or (3) Owner’s equity: a. accounts receivable b. accounts payable c. cash d. fees earned e. land f. rent expense g. supplies
> A fertilizer manufacturing company wants to relocate to Lakeside County. A report from a fired researcher at the company indicates the company’s product is releasing toxic by-products. The company suppressed that report. A later report commissioned by th
> D’Lite Dry Cleaners is owned and operated by Joel Palk. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company for a fee. The assets and liabilities of the busi
> The following is a list of well-known companies: 1. Alcoa Inc. 2. Boeing 3. Caterpillar 4. Citigroup Inc. 5. CVS 6. Delta Air Lines 7. eBay Inc. 8. FedEx 9. Ford Motor Company 10. Gap Inc. 11. H&R Block 12. Hilton Hospitality, Inc. 13. Procter & Gamble 1
> Why is a treaty important to a nonresident worker in the United States?
> What is a permanent establishment and why is it an important part of most income tax treaties?
> What is the primary goal of the United States in negotiating income tax treaties with other countries?
> Describe a reason why a generation-skipping tax was necessary to augment the estate and gift taxes.
> People sometimes confuse the unified credit with the exemption equivalent. Describe how these terms differ and how they are related.
> True or False: Including taxable gifts when calculating the estate tax subjects these transfers to double taxation. Explain.
> Describe a reason why transfers of terminable interests should not qualify for the marital deduction.
> Explain why the fair market value of a life estate is more difficult to estimate than an income interest.
> Jack and Jill are owners of UpAHill, an S corporation. They own 25 and 75 percent, respectively. a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above? b. Complete UpAHill’s
> Spartan Corporation, a U.S. corporation, reported $2 million of pretax income from its business operations in Spartania, which were conducted through a foreign branch. Spartania taxes branch income at 25 percent, and the United States taxes corporate inc
> Explain how a remainder and an income interest are valued for transfer tax purposes.
> Identify the factors that determine the proportion of the value of property held in joint tenancy with the right of survivorship that will be included in a decedent’s gross estate.
> List the conditions for making an election to split gifts.
> Describe the conditions for using the annual exclusion to offset an otherwise taxable transfer.
> Renée operates Scandinavian Imports, a furniture shop in Olney, Maryland that ships goods to customers in all 50 states. Scandinavian Imports also appraises antique furniture and has recently conducted in-home appraisals in the District of Columbia, Mary
> Freon Corporation, a U.S. corporation, manufactures air-conditioning and warm air heating equipment. Freon reported gross sales from this product group of $50,000,000, of which $10,000,000 were foreign source. The gross profit percentage for domestic sal
> Identify two types of transfers for inadequate consideration that are specifically excluded from imposition of the gift tax.
> Describe a situation in which a transfer of cash to a trust might be considered an incomplete gift.
> Describe a property transfer or payment that is not, by definition, a transfer for inadequate consideration.
> Describe the requirements for a complete gift, and contrast a gift of a present interest with a gift of a future interest.
> IBM incurs $250 million of research and experimental expenditures (R&E) in the United States. How does the “exclusive apportionment” of this deduction differ depending on the R&E apportionment method chosen in the computation of the foreign tax credit li
> Hank is a single individual who possesses a life insurance policy worth $300,000 that will pay his two children a total of $800,000 upon his death. This year Hank transferred the policy and all incidents of ownership to an irrevocable trust that pays inc
> Suppose Vince dies this year with a gross estate of $15 million and no adjusted prior gifts. Calculate the amount of estate tax due (if any) under the following alternative conditions. a. Vince leaves his entire estate to his spouse, Millie. b. Vince lea
> Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In the conditions listed below, how much income should each report from SleepEZ for 2016 under both the daily allocation and the specific identification allocation methods? Ref
> Montgomery has decided to engage in wealth planning and has listed the value of his assets below. The life insurance has a cash surrender value of $120,000 and the proceeds are payable to Montgomery’s estate. The trust is an irrevocable
> Jack is single and he made his first taxable gift of $1,000,000 in 2008. Jack made additional gifts in 2009, at which time he gave $1,750,000 to each of his three children and an additional $1,000,000 to State University (a charity). The annual exclusion
> What is the difference between a sales tax and a use tax?
> Carmen SanDiego, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. On April 1, 2016, GM relocated Carmen to its Brazilian operations for the remainder of 2016. Carmen was paid a salary of $120,000 and was employed on a 5-day
> Owl Vision Corporation (OVC) is a North Carolina corporation engaged in the manufacture and sale of contact lens and other optical equipment. The company handles its export sales through sales branches in Belgium and Singapore. The average tax book value
> Waco Leather, Inc., a U.S. corporation, reported total taxable income of $5 million. Taxable income included 1.5 million of foreign source taxable income from the company’s branch operations in Mexico. All of the branch income is general category income.
> Mackinac Corporation, a U.S. corporation, reported total taxable income of $5 million. Taxable income included $1.5 million of foreign source taxable income from the company’s branch operations in Canada. All of the branch income is general category inco
> How does the U.S.-Belgium treaty define a permanent establishment for determining nexus? Look at Article 5 of the 2007 U.S.-Belgium income tax treaty, which you can find on the IRS Website, www.irs.gov.
> Falmouth Kettle Company, a U.S. corporation, sells its products in the United States and Europe. During the current year, selling, general, and administrative (SG&A) expenses included: Personnel department………………………………………………………………………………$
> Spartan Corporation, a U.S. company, manufactures green eye shades for sale in the United States and Europe. All manufacturing activities take place in Michigan. During the current year, Spartan sold 10,000 green eye shades to European customers at a pri
> Sam Smith is a citizen and bona fide resident of Great Britain (United Kingdom). During the current year, Sam received the following income: o Compensation of $30 million from performing concerts in the United States. o Cash dividends of $10,000 from a F
> Pavel, a citizen and resident of Russia, spent 100 days in the United States working for his employer, Yukos Oil, a Russian corporation. Under what conditions will Pavel be subject to U.S. tax on the portion of his compensation earned while working in th
> Carol receives $500 of dividend income from Microsoft, Inc., a U.S. company. True or False: Absent any treaty provisions, Carol will be subject to U.S. tax on the dividend regardless of whether she is a resident or nonresident. Explain.
> Compare and contrast general sales and use tax nexus and the new “Amazon” rule creating nexus in New York.
> Why are the income source rules important to a U.S. citizen or resident?
> Why does the United States allow U.S. taxpayers to claim a credit against their precredit U.S. tax for foreign income taxes paid?
> Use the facts in problem 41. If Guido meets the statutory requirements to be considered a resident of both the United States and Belgium, what criteria does the U.S.-Belgium treaty use to “break the tie” and determine Guido’s country of residence? Look a
> Distinguish between allocation and apportionment in sourcing deductions in computing the foreign tax credit limitation.
> Natasha is not a citizen of the United States, but she spends 200 days per year in the United States on business. She does not have a green card. True or False: Natasha will always be considered a resident of the United States for U.S. tax purposes becau
> Maria is not a citizen of the United States, but she spends 180 days per year in the United States on business-related activities. Under what conditions will Maria be considered a resident of the United States for U.S. tax purposes?
> What are the two categories of income that can be taxed by the United States when earned by a nonresident? How does the United States tax each category of income?
> Cathy, Heathcliff, and Isabelle are equal shareholders in Wuthering Heights (WH), an S corporation. Heathcliff has decided he would like to terminate the S election. In the following alternative scenarios, indicate whether the termination will occur and
> What are the major U.S. tax issues that apply to an outbound transaction?
> What are the major U.S. tax issues that apply to an inbound transaction?
> True or False: Subpart F income is always treated as a deemed dividend to the U.S. shareholders of a controlled foreign corporation. Explain.
> Discuss why restaurant meals, rental cars, and hotel receipts are often taxed at a higher-than-average sales tax rate.
> What is foreign base company sales income? Why does the United States include this income in its definition of subpart F income?
> True or False: A foreign corporation owned equally by 11 U.S. individuals can never be a controlled foreign corporation? Explain.
> True or False: A taxpayer will always prefer deducting an expense against U.S. source income and not foreign source income when filing a tax return in the United States. Explain.
> Why does the United States not allow deferral on all foreign source income earned by a controlled foreign corporation?
> Guido is a citizen and resident of Belgium. He has a full-time job in Belgium and has lived there with his family for the past 10 years. In 2014, Guido came to the United States for the first time. The sole purpose of his trip was business. He intended t
> What are the requirements for a foreign corporation to be a controlled foreign corporation for U.S. tax purposes?
> What is a “per se” entity under the check-the-box rules?
> What is a hybrid entity for U.S. tax purposes? Why is a hybrid entity a popular organizational form for a U.S. company expanding its international operations? What are the potential drawbacks to using a hybrid entity?
> What is a functional currency? What role does it play in the computation of an indirect credit for foreign tax credit purposes?
> Missy is one of 100 unrelated shareholders of Dalmatian, an S corporation. She is considering selling her shares. Under the following alternative scenarios, would the S election be terminated? Why or why not? a. Missy wants to sell half her shares to a f
> What is an indirect credit for foreign tax credit purposes? What is the tax policy reason for allowing such a credit?
> Describe how the failure to collect sales tax can result in a larger tax liability for a business than failing to pay income taxes.
> True or False: All dividend income received by a U.S. taxpayer is classified as passive category income for foreign tax credit limitation purposes. Explain.
> What are the potential U.S. tax benefits from engaging in a §863(b) sale?
> In what circumstances would a business be subject to income taxes in more than one state?
> Jane has been operating Mansfield Park as a C corporation and decides she would like to make an S election. What is the earliest the election will become effective under each of these alternative scenarios? a. Jane is on top of things and makes the elec
> Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to customers in the United States, Canada, England, and Australia. Spartan markets its products in Canada and England through branches in Toronto and
> Windmill Corporation manufactures products in its plants in Iowa, Canada, Ireland, and Australia. Windmill conducts its operations in Canada through a 50 percent owned joint venture, CanCo. CanCo is treated as a corporation for U.S. and Canadian tax purp
> LeMond Incorporated, a Wisconsin corporation, runs bicycle tours in several states. LeMond also has a Wisconsin retail store and an Internet store that ships to out-of-state customers. The bicycle tours operate in Colorado, North Carolina, and Wisconsin
> Last year, Reggie, a Los Angeles, California resident, began selling autographed footballs through Trojan Victory (TV), Incorporated, a California corporation. TV has never collected sales tax. Last year TV had sales as follows: California ($100,000), Ar
> USCo manufactures and markets electrical components. USCo operates outside the United States through a number of CFCs, each of which is organized in a different country. These CFCs derived the following income for the current year. Determine the amount o
> Kai operates the Surf Shop in Laie, Hawaii, which designs, manufacturers, and customizes surf boards. Hawaii has a 4 percent excise tax technically paid by the seller. However, the state also allows "tax on tax" to be charged, which effectively means a c
> Melanie operates Mel’s Bakery in Foxboro, Massachusetts with retail stores in Connecticut, Maine, Massachusetts, New Hampshire, and Rhode Island. Mel’s also ships specialty breads nationwide upon request. Determine Mel’s sales tax collection responsibili
> Crazy Eddie Incorporated manufactures baseball caps and distributes them across the northeastern United States. The firm is incorporated and headquartered in New York and sells to customers in Connecticut, Delaware, Massachusetts, New Jersey, New York, O
> Ashton Corporation is headquartered in Pennsylvania and has a state income tax base there of $500,000. Of this amount, $50,000 was non-business income. Ashton’s Pennsylvania apportionment factor is 42.35 percent. The nonbusiness income allocated to Penns
> Mark is the sole shareholder of Tex Corporation. Mark first formed Tex as a C corporation. However, in an attempt to avoid having Tex’s income double taxed, Mark elected S corporation status for Tex several years ago. On December 31, 2016, Tex reports $5
> Brady Corporation is a Nebraska Corporation, but owns business and investment property in surrounding states as well. Determine the state where each item of income is allocated. a. $15,000 of dividend income. b. $10,000 of interest income. c. $15,000 of
> Susie’s Sweet Shop has the following sales, payroll and property factors: What are Susie’s Sweet Shop’s Iowa and Missouri apportionment factors under each of the following alternative scenarios? a. I
> Lucy and Ricky Ricardo live in Los Angeles, California. After they were married, they started a business named ILL Corporation (a C corporation). For state law purposes, the shares of stock in ILL Corp. are listed under Ricky’s name only. Ricky signed th
> Delicious Dave’s Maple Syrup, a Vermont Corporation, has property in the following states: What are the property apportionment factors for Maine, Massachusetts, New Hampshire, and Vermont in each of the following scenarios? a. Deliciou
> Nicole’s Salon, a Louisiana Corporation, operates beauty salons in Arkansas, Louisiana, and Tennessee. These salon’s payroll by state, are as follows: Nicole’s…………….…….....Salon State…………………..….. Payroll Arkansas…………………..…..$130,239 Louisiana…………………..…
> Bad Brad sells used semi-trucks and tractor trailers in the Texas panhandle. Bad Brad has sales as follows: Bad……………………………………………Brad State………………………………………….Sales Colorado………………………………$234,992 Oklahoma……………………………….402,450 New Mexico…………………………..675,204 Tex
