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 fair market value of $15 million. Its assets related to the sales activity have a x book value of $2 million and a fair market value of $5 million. Create's interest expense totaled 400,000 for the current year.
What amount of Create's interest expense is allocated and apportioned to foreign-source income using the tax book blue method? Using the fair market method?
If Create wants to maximize its FTC, which method should it use?
49. Collins, Inc., a domestic corporation, operates a manufacturing branch in Singapore. During the current year, the manufacturing branch produces a loss 300,000. Collins also earns interest income from investments in Europe, where it earns 800,000 in passive income. Collins paid no foreign income taxes related to the Singapore branch, but it paid 64,000 in foreign income taxes related to the passive income. Collins pays U.S. income taxes at the 34% tax rate. What is Collin's allowable FTC for the current year?
54. 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. Upon Sale of the land for 1.5 million to Emma, an Illinois person, what are the Federal income tax consequences to Martinho?
27. Rita forgot to pay her Federal income tax on time. When she actually filed, she reported a balance due. Compute Rita's failure to file penalty in each of the following cases.
Two months late, 1,000 additional tax due
Five months late, 3,000 additional tax due
Eight months late 4,000 additional tax due
Two and half months late, 3,000 additional tax due
Five months late due to fraud by Rita, 4,000 additional tax due
Ten months late due to fraud by Rita, 15,000 additional tax due
48. Compute the preparer penalty the IRS could assess on Gerry in each of the following independent cases.
On March 21, the copy machine was not working so Gerry gave original returns to her 20 clients that day without providing any duplicates for them. Copy for Gerry's files and for us in preparing state tax returns had been made on March 20.
Because Gerry extended her vacation a few days, she missed the annual tax update seminar that she usually attends. As a result she was unaware that congress had changed a law affecting limited partnerships. The change affected the transactions of 25 of Gerry's clients, all of whom understand their tax as a result.
Gerry heard that the IRS was increasing its audits of corporation that holds assets in a foreign trust. As a result Gerry instructed the intern who prepared the initial drafts of the returns for five corporate clients to leave blank the question about such trusts. Not wanting to lose his position the intern, a senior accounting major at State University, complied with Gerry's instructions.