M5 Multi-jurisdictional Tax Issues Flashcards
MCQ-02232
Foreign income taxes paid by a corporation:
May be claimed either as a deduction or as a credit, at the option of the corporation.
Rule: Foreign income taxes paid by a domestic corporation may be claimed either as a deduction or as a credit, at the option of the corporation.
MCQ-08322
The IRS has the authority to adjust upward or downward the gross income and deductions between or among certain organizations to prevent the evasion of taxes or to clearly reflect the income of two or more organizations. Which one of the following is a characteristic of these organizations?
The organizations may be members of an affiliated group that file a consolidated U.S. tax return.
The organizations that are subject to these provisions of the IRC extend to members of an affiliated group that file a consolidated U.S. income tax return.
MCQ-08321
The IRS often makes adjustments when there are transfer pricing issues. Transfer pricing issues exist under which of the following circumstances?
A U.S.-based taxpayer shares costs with an affiliate that is not subject to U.S. income tax and does not file a consolidated income tax return with the U.S.-based taxpayer
Transfer pricing issues exist when a U.S.-based taxpayer shares costs with an affiliate that either (i) is not subject to the U.S. income tax or (ii) does not file a consolidated income
tax return with the U.S.-based taxpayer
MCQ-08323
A binding contract between the IRS and the taxpayer by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files its return for a covered year consistent with the agreed transfer pricing method is called a(n)
Advance Pricing Agreement Program.
The APA is a binding contract between the IRS and the taxpayer by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files its
return for a covered year consistent with the agreed transfer pricing method.
MCQ-04560
Which of the following activities will not trigger nexus in a state in which a company operates?
Delivery by a common carrier.
Delivery by a common carrier (e.g., a delivery business) does not create nexus.
MCQ-04563
Which of the following statements best describes a multistate corporation’s approach to the apportionment and allocation of its income?
I. The corporation will allocate its nonbusiness income.
II. The corporation will apportion its business income.
Both I and II
A corporation will allocate its nonbusiness income to the state where it should be taxed. Nonbusiness income generally does not relate to the corporation’s primary business activity. A corporation will apportion its business income based on the extent of the corporation’s activities and property within a state. Business income relates to the primary business activities of the corporation.
MCQ-14934
A C corporation conducted all of its business activities in states A and B and generated $1 million of pretax income in Year 1. The tax rate is 10 percent in state A and 5 percent in state B. Both states apportion the taxable income of multistate corporations by employing an equally weighted three-factor apportionment formula. Neither state allows a tax deduction for state corporate income taxes. At the end of Year 1, the corporation reported the following percentages for its activities in each state for the purpose of calculating the state apportionment factors:
State A State B Payroll expense 50% 50% Sales 75% 25% Net property value 25% 75%
What is the corporation’s Year 1 state apportionment ratio for state B?
50%
The Year 1 state apportionment ratio, or factor, for State B is 50 percent. The state apportionment factor is the average of the state’s percentage of total payroll paid to employees within the state, percentage of sales from sources within the state, and the percentage of property and rent expense located within the state. (Payroll 50% + Sales 25% + Property 75%) ÷ 3 =
150% ÷ 3 = 50%
MCQ-04561
Reiki Inc. operates stores in Massachusetts and Vermont. Reiki’s payroll, property, and sales by state are as follows:
State Payroll_Property (Ending)_Property (Average)_Sales
Massachusetts $200,000 $175,000 $195,000 $750,000
Vermont $350,000 $225,000 $200,000 $900,000
Total $550,000 $400,000 $395,000 $1,650,000
What is Reiki’s apportionment factor for Massachusetts (round to two decimal places)?
43.73%
The apportionment factor is calculated by averaging the factor of sales, payroll, and property for a specific state. These factors are the ratio of (1) total sales, payroll, or property in a specific state to (2) total sales, payroll, or property everywhere.
[Payroll ($200,000/$550,000) + Property ($195,000/$395,000) + Sales ($750,000/$1,650,000)] / 3 [36.36 + 49.37 + 45.45] / 3 = 43.73%
MCQ-04559
DomCo (a domestic corporation) owns 100 percent of ForCo (a foreign corporation), which operates outside of the United States. Which of the following statements is correct?
ForCo’s Subpart F income will generally be treated as deemed dividend subject to immediate recognition by DomCo.
Because ForCo is a CFC, certain types of income (e.g., passive investment income) earned are subject to immediate taxation.
MCQ-04558
Bangle Supplies Inc. (a U.S. corporation) is a wholesale distributor of office supplies. In Year 3, Bangle sells office supplies to Go Green Ltd. (a Canada corporation). Bangle ships $300,000 in office supplies to Go Green’s headquarters in Quebec, Canada, and $250,000 in office supplies to Go Green’s warehouse in Detroit, Michigan (with title passing upon delivery). In addition, Go Green pays Bangle $35,000 to provide environmental consulting services at its headquarters in Quebec. What is Bangle’s U.S. source and foreign source income in Year 3?
U.S. source, $250,000; foreign source, $335,000
U.S. source income [$250,000]; foreign source income [$300,000 + $35,000 = $335,000] from the sale of purchased inventory is sourced where title passes. Income from
compensation for personal services is sourced where the service is performed
