1. Martinho is a citizen of Brazil and lives there year-round. He has invested in a plot of Illinois farmland with a tax basis to him of $1 million. Martinho has no other business or investment activities in the United States. He is not subject to the alternative minimum tax.
a. Upon sale of the land for $1.5 million to Emma, an Illinois person, what are the Federal income tax consequences to Martinho?
Create, Inc., produces inventory
in its foreign manufacturing plants for sale in the United States. Its foreign
manufacturing assets have a tax book value of $5 million and a fair market
value of $15 million. Its assets related to the sales activity have a tax book
value of $200000 and a fair market value of $50000. Create s interest expense
totaled $300000 for the current year.
a. What amount of interest
expense is allocated and apportioned to foreign-source income using the tax
book value method? What amount of Create s interest expense is allocated and
apportioned to foreign-source income using the fair market method?
b. If Create wishes to maximize its FTC, which
method should it use?