Chapter 24 The U.S. Taxation of Multinational Transactions

1. (LO 1) Distinguish
between an outbound transaction and an inbound transaction from a U.S. tax
perspective.

2. (LO 1) What are the
major U.S. tax issues that apply to an inbound transaction?

3. (LO 1) What are the
major U.S. tax issues that apply to an outbound transaction?

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4. (LO 1) How does a residence-based
approach to taxing worldwide income differ from a source-based approach to
taxing the same income.

5. (LO 1) Henri is a
resident of the United States for U.S. tax purposes and earns $10,000 from an
investment in a French company. Will
Henri be subject to U.S. tax under a residence-based approach to taxation? A source-based approach?

6. (LO 1) 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?

7. (LO 1) 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?

8. (LO 1) 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 because of her physical presence in
the United States. Explain.

9. (LO 1) Why does the
United States allow U.S. taxpayers to claim a credit against their precredit
U.S. tax for foreign income taxes paid?

10. (LO 1) What role does
the foreign tax credit limitation play in U.S. tax policy?

11. (LO 2) Why are the
income source rules important to a U.S. citizen or resident?

12. (LO 2) Why are the
income source rules important to a U.S. nonresident?

13. (LO 2) 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.

14. (LO 2) 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 the United States?

15. (LO 2) What are the
potential U.S. tax benefits from engaging in a §863(b) sale?

16. (LO 2) 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.

17. (LO 2) Distinguish between
allocation and apportionment in sourcing deductions in computing the foreign tax
credit limitation.

18. (LO 2) Distinguish
between a definitely related deduction
and a not definitely related deduction
in the allocation and apportionment of deductions to foreign source taxable
income.

19. (LO 2) Briefly
describe the two different methods for apportioning interest expense to foreign
source taxable income in the computation of the foreign tax credit limitation.

20. (LO 2) Briefly
describe the two different methods for apportioning R&E to foreign source
taxable income in the computation of the foreign tax credit limitation.

21. (LO 2) IBM incurs
$250 million of 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 limitation?

22. (LO 3) What is the
primary goal of the United States in negotiating income tax treaties with other
countries?

23. (LO 3) What is a permanent establishment and why is it an
important part of most income tax treaties?

24. (LO 3) Why is a
treaty important to a nonresident investor in U.S. stocks and bonds?

25. (LO 3) Why is a
treaty important to a nonresident worker in the United States?