Taxation of Business Entities: Chapter Study Questions

May 26th, 2016
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Chapter 16: Taxation of Foreign-Related Transactions

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TAXATION OF BUSINESS ENTITIES: CHAPTER 16 SAMPLE QUIZ # 1ANSWERS ARE HIGHLIGHTED1. What is the deferral privilege? What tax provisions result in the current U.S. taxation of partor all of a foreign corporation's earnings?A.The deferral privilege alleviates double taxation by allowing U.S. investors to take a credit for income taxes paid oraccrued to a foreign country. U.S. tax results when the dividends exceed 10% of the U.S. investor's income for the year.Your answer is not correct.B.The deferral privilege is when a foreign subsidiary becomes a "tax-haven" allowing for a tax-free exchange of income thatdoes not become taxable until the relationship between the countries end, typically through a liquidation.C.The deferral privilege is the temporary tax exemption available to a U.S. investor that owns an interest in aforeign corporation. The U.S. investor's share of the foreigncorporation's earnings generally are not taxed in theUnited States until the earlier of the time they are repatriated to the United States in the form of a dividend, or theU.S. investor sells the stock investment.This is the correct answer.D.The deferral privilege allows a tax credit where the U.S. citizen's shareholder reside in a foreign country for an entire taxyear and maintain a tax home in the foreign country. U.S. tax results when income earned from the foreign corporation'sU.S. trade or business activities are passed through to a shareholder in a foreign country.2. What thr

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