5.5 - Multi-Jurisdictional Tax Issues

Question 1

Any one of two or more taxpayers owned or controlled directly or indirectly by the same interests and the definition includes a taxpayer that owns or controls the other taxpayers:

Answer 1

Controlled taxpayer

Question 2

Any one of two or more taxpayers not owned or controlled directly or indirectly by the same interests:

Answer 2

Uncontrolled taxpayer

Question 3

Any transaction or transfer between two or more members of the same group of controlled taxpayers:

Answer 3

Controlled transaction

Question 4

Any transaction between two or more taxpayers that are not members of the same group of controlled taxpayers:

Answer 4

Uncontrolled transaction

Question 5

Uncontrolled transaction or uncontrolled taxpayer that is compared with a controlled transaction or controlled taxpayer:

Answer 5

Uncontrolled comparable

Question 6

What do the IRS adjustments necessary to determine “true taxable income” apply to?

Answer 6

Controlled transactions and controlled transfers

Question 7

What is the comparable uncontrolled price (CUP) method used for?

Answer 7

Only tangible property (sales, purchase and leases)

Question 8

what is the comparable uncontrolled transaction (CUT) pricing method used for?

Answer 8

Only intangible property

Question 9

What is the resale price and cost plus price methods both used for?

Answer 9

Tangible property only

Question 10

Us based taxpayer transfers, sells, purchases, or lease tangible property or intangible property to or from an affiliated hat is not subject to US income tax or does not file a consolidated income tax return with the us based taxpayer. Does this create transfer pricing issue?

Answer 10

Yes

Question 11

A us based taxpayer enters into loan agreements or service contracts with an affiliate that either is not subject to us income tax or does not file a consolidated income tax return with the us based taxpayer. Does this create a transfer pricing issue?

Answer 11

Yes

Question 12

A us based taxpayer shares costs with an affiliate that is not subject to us income tax or does not file a consolidated income tax return with the us taxpayer. Does this create a transfer pricing issue?

Answer 12

Yes

Question 13

The minimum level of contact a taxpayer may have with a jurisditction to be subject to its tax is:

Answer 13

Nexus

Question 14

Federal law prohibits a state and its political subdivisions from imposing a net income tax on a persons net income derived from interstate commerce occurring within the states borders when the following 3 circumstances are present:

Answer 14

1. Only business activity of the person within the state consists of the solicitation of order for sals of tangible personal property
2. Orders are sent outside the state for acceptance or rejection
3. If orders are accepted, they are filled by shipment or delivery from a point outside the sate

Question 15

The following are examples of activities that may trigger nexus (and make you subject to state income tax) in a state in which a company operates:

Answer 15

Owning or leasing tangible personal or real property
Sending employees int the state for training or work
Soliciting sales in a state
Providing installation, maintenance, etc. to a customer with a state
Accepting or rejecting sales orders within the state or accepting returns

Question 16

Huntley sells computers and is incorporated and resides in California. In addition, Huxley solicits sales in Oregon, arizona, and Colorado. It provides installation services to its customers in arizona, and it conducts employee training at a facility in Colorado.
Determine with which states Huntley has nexus.

Answer 16

California (because it resides/was incorporated)
Colorado (conducts training there)
Arizona (installation services there)

Question 17

Nonbusiness income is generally assigned to who/where for tax purposes?

Answer 17

The state where the company resides (its “home state”)

Question 18

The standard apportionment factor formula that is used by many states is calculated in the following manner:

Answer 18

[(Property & rent expenses / total property) + (payroll paid to employees / total payroll) + (sales / total sales)]

Question 19

A foreign entity is generally classified as either:

Answer 19

A foreign branch
Or
A foreign subsidiary

Question 20

An unincorporated foreign entity that is viewed as an extension of the domestic corporation. However, earnings from the branch are generally taxed by the foreign host country as well

Answer 20

Foreign branch

Question 21

Federal tax consequences related to a foreign branch are:

Answer 21

Profits and losses earned are taxed in full when earned
A foreign tax credit/deduction is allowed

Question 22

A separate legal entity, incorporated under the laws of the foreign host country. Profits are taxed by the host country.

Answer 22

Foreign subsidiary

Question 23

Federal tax consequences related to the foreign subsidiary are:

Answer 23

Income earned is not taxed until the earnings are brought back to the US in form of dividends (except for passive investment income is taxed immediately).

Question 24

The IRS defines 9 items of income that should be treated as sources of income from within the US:

Answer 24

Interest
Dividends
Personal services
Rents and royalties
Disposition of U.S. real property interest
Sale or exchange of inventory property
Underwriting income
Social security benefits
Guarantees