Multi-jurisdictional Tax Issues

Question 1

What is a controlled taxpayer?

Answer 1

any one of two or more taxpayers owned or controlled directly or indirectly by the same interests

Question 2

What is a noncontrolled taxpayer?

Answer 2

any one of two or more taxpayers not owned or controlled directly or indirectly by the same interests

Question 3

How can foreign income taxes paid by a corporation be claimed?

Answer 3

as a credit or deduction (at the option of the corporation)

Question 4

What does the IRC have authority to do in order to prevent tax evasion or to clearly reflect the income of two or more organizations?

Answer 4

adjust upward or downward the gross income, deductions, credits, and allowances between or among certain organizations

the organizations may be members of an affiliated group that file a consolidated U.S. tax return

Question 5

What is the Advance Pricing Agreement Program?

Answer 5

a binding contract between the IRS and the taxpayer by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the taxpayer files its return for a covered year consistent with the agreed transfer pricing method

Question 6

What does nexus mean?

Answer 6

the minimum level of contact a taxpayer may have with a jurisdiction to be subject to its tax (a company having property, payroll, or sales within a state)

Question 7

Once nexus is established, the next step is for the company to determine how much of its total federal income or loss should be taxable by each state. This is accomplished through what?

Answer 7

allocation (of nonbusiness income…income that does not relate to the primary business activities of the corporation within the state)

and

apportionment (of business income…income that relates to the primary business activities of the corporation within the state) –> this is done through the apportionment factor

Question 8

What is the standard apportionment factor formula?

Answer 8

[(property and rent expense located within the state / total property) + (payroll paid to employees within the state / total payroll) + (sales from sources within the state / total sales)] / 3

Question 9

What is a foreign branch?

Answer 9

an unincorporated foreign entity that is viewed as an extension of the domestic corporation; it is not a separate legal entity, however, earnings from the branch are generally taxed by the foreign host country as well

Question 10

What is a foreign subsidiary?

Answer 10

a separate legal entity, incorporated under the laws of the foreign host country; accordingly, the subsidiary profits are taxed by the host country