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57. Which of the following circumstances would favor the foreign earned income exclusion over the foreign tax credit? a. Income is subject to a high tax rate in the foreign country. b. Income is too high to qualify for either the full exclusion or the full credit. C. 30% of foreign income is considered earned; the other 70% is investment income. d. Income is subject to a low tax rate in the foreign country.

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Collen Von
Collen VonLv2
28 Sep 2019

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Why is it important for a foreign national to ascertain whether he or she is a resident of the United? States?

A. It is important because if a foreign national is a resident of the United? States, the taxpayer is taxed on their worldwide income at progressive individual tax rates. If a foreign national is a resident of a country other than the United? States, different rules apply such? as, the taxpayer is taxed on any income in the country of their? residence, no exceptions.

B.

It is important because if a foreign national is a resident of the United? States, passive income is taxed at a flat? 30% rate while trade or business income is taxed at progressive individual rates. If a foreign national is a nonresident of the United? States, different rules apply such? as, the taxpayer is taxed on their worldwide income at progressive individual tax rates.

C. It is important because if a foreign national is a resident of the United? States, the taxpayer is taxed on their worldwide income at progressive individual tax rates. If a foreign national is a resident of a country other than the United? States, different rules apply such? as, passive income is taxed at a flat? 30% rate to a nonresident alien while trade or business income is taxed at progressive individual rates.? Generally, such an individual is taxed only on income earned in the United States.

D. It is important because if a foreign national is a resident of the United? States, passive income is taxed at a flat? 30% rate while trade or business income is taxed at progressive individual rates. If a foreign national is a nonresident of the United? States, different rules apply such? as, the taxpayer is taxed on any income in the country of their? residence, no exceptions.

Dixie Inc., a Tennessee corporation, conducts business through branch offices in the United States, Mexico, and Canada. Dixie owns 100 percent of the stock of two foreign subsidiaries, Dix-Col Inc. and Dix-Per Inc., through which it conducts its South American business. This year, Dixie recognized the following items of taxable income:

U.S. source income from domestic branch $ 5,170,000

Foreign source income from foreign branches 1,173,800

Cash dividends received from Dix-Col 312,000

Cash dividends received from Dix-Per 301,500

During the year, Dixie paid $217,000 income tax to Mexico and $335,000 income tax to Canada. It paid no direct income taxes to any other foreign country. However, Dix-Col paid a 20 percent income tax to the country of Colombia, and Dix-Per paid a 37 percent income tax to the country of Peru. U.S. tax rate is 34 percent.

a. Compute Dixie’s taxable income. (Round your intermediate calculations to the nearest whole dollar.)

b. Compute Dixie’s U.S. tax. (Do not round any intermediate division. Round your intermediate calculations to the nearest whole dollar.)

1. California Cars is a U.S. manufacturer of electric cars.California Cars has $5 billion of U.S. taxable income—$4 billion ofwhich is U.S.-source income and $1 billion of which isforeign-source income. California Cars faces a U.S. tax rate of 35%and paid foreign taxes of $280 million. The firm’s foreign sourceincome falls in the general basket. It is the first year ofCalifornia Cars’ foreign operations, so don’t worry about foreigntax credit carryforwards or carrybacks.

a. What is California Cars’ foreign tax credit, and what is itsworldwide tax paid for the year?(please provide formulas)

CHECK FIGURE: $1,750


Formula Answer
US tax before FTC=
FTC=min=
US tax after FTC=
Worldwide Tax

b. Now suppose that California Cars engaged in tax-reductionstrategies abroad, reducing its foreign taxes to $200 million butholding all else constant. What is California Cars’ foreign taxcredit, and what is its worldwide tax paid for the year?

Formula Answer
US tax before FTC
FTC=min=
US tax after FTC=
Worldwide tax=
Does This tax strategy affect the firms worldwide taxburden? (Answer here)

c. What possible benefit might California Cars receive fromreducing its foreign taxes paid in part b?

In particular, suppose that the foreign country in whichCalifornia Cars operates is likely to enact a dramatic increase inits tax rate next year.

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