Multijurisdictional Tax/Tax-Exempt Entities

Question 1

When can a state impose these taxes:

Sales
Income
Use
Franchise
Property
Excise

Answer 1

S: when something is purchased in that state.
I: When revenue is created in the state
U: When something is purchased in another state and used in the current state
F: When value of capital used in the state. Doing business in the state.
P: based on value of real and personal property in state, levied on property owned at specific date usually.
E: levied on quantity of item or sales price

Question 2

Foreign Tax Credit Limit Formula:

Answer 2

Foreign Income/(US Income + Foreign Income) x US Tax Liability

Add personal exemptions to worldwide income

Question 3

Foreign Taxes paid can be used in the credit computation if:

Answer 3

The earned income that it is related to is not excludable from US income.

Question 4

Character of Foreign Currency Exchange Gains/Loss

Answer 4

Depends on what caused it and it follows US rules. Normal course of business are ordinary and personal and investing are capital.

Question 5

Private Foundation requires:

Answer 5

-receives less than one-third of its annual support from its members and the general public

Question 6

Exempt from filing annual information returns:

Answer 6

• Churches
• Internally supported auxiliaries
• Organizations with 50K or less in gross receipts each taxable year

Question 7

Jurisdiction to tax in state determined by:

Answer 7

• Activity has substantial nexus
• Fairly apportioned
• Not discriminated against interstate commerce
• Fairly related to services that state provides

Question 8

What will not create Nexus in state:

Answer 8

• Solicitation of sales of tangible personal property that are approved and shipped outside the state
• Advertising
• Determining reorder needs of customer
• Furnishing autos to sales staff

Question 9

Business/Nonbusiness Income apportionment by state:

Answer 9

Business: all states in which coprporation does business
Nonbusiness: Only that home state or state that income is earned

Question 10

Unearned income is determined to be foreign if:

Answer 10

Received from a foreign resident or for property that is used in a foreign country

Question 11

Income from sale of personalty is determined:

From Intangibles:

From Real Property:

Answer 11

Based on residence of the seller. Exceptions:

• Inventory is based on where title transfers
• Depreciable property is where the recapture is sourced and the rest is where title transfers

Intangibles: where amortization is claimed

RP: where property is located

Question 12

CFC is:

Answer 12

a foreign company with over 50% of voting power owned by US shareholders on any day of the tax year. The US shareholders may be taxed on CFC income as a constructive dividend, ex. Subpart F income

Question 13

Filing Requirements for exempt organizations:

Answer 13

• Application to receive exemption on Form 1023/1024 (can be organization or trust)
• Must file Form 990 annually if gross receipts over $50K unless it is a church. Private foundations file 990-PF. Can file 990-EZ if gross receipts does not exceed $200K or assets doesn’t exceed $500K.
• If not filing 990, still need to file 990-N unless it is a church.

Question 14

What is Unrelated Business Income to an exempt organization:

Answer 14

• Income is from business that is regularly carried out.
• The business is not substantially related to the organization’s exempt purposes.

Examples: Advertising in Journals

It is taxed only if it exceeds $1,000 and it is taxed based on whether it is a trust or corporation.

Question 15

Related Income to an exempt organization includes:

Answer 15

• Activity where substantially all work is performed for no compensation
• Business carried for convenience of charitable, religious or scientific organization
• Sale of contributed merchandise
• Investment Income (generally)
• Rent from real property