Assignment 1: Unit 1 Problems

1. Juan is a citizen and resident of Brazil. During the current year, Juan never visits the United States, nor does he hold a green card. However, he received a dividend from Macro Corporation, received interest on a bond issued by NTI Corporation, realized a gain on the sale of Paxtel Corporation stock, and realized a gain on the sale of 2,000 acres of undeveloped land located in Tennessee. Macro, NTI, and Paxtel are all corporations organized in the United States. The United States does not have an income tax treaty with Brazil.
   1. Describe the U.S. tax consequences of each of the above items of income.
   2. How would your answers change if Juan held a green card?
2. Alabama Co is a domestic corporation that manufactures products in the United States for distribution in the U.S. and abroad. During the current year, Alabama Co derives a pre-tax profit of $20 million, which includes $2 million of foreign-source income derived from a country F sales office that is considered an unincorporated branch for U.S. tax purposes. The country F corporate income tax rate is 30%, and the U.S. tax rate is 21%.
   1. What would be the amount of worldwide tax paid on the foreign-source income, assuming the United States taxes the worldwide income of domestic corporations, but allows an unlimited credit for foreign income taxes? How much, if any, excess credit would be allowed to offset other U.S. source income?
   2. What would be the amount of worldwide tax paid on the foreign-source income, assuming the United States allows a credit for foreign income taxes, but the credit is limited to the United States tax attributable to foreign-source income?
   3. How would your answer to part (b) change if the foreign tax rate was 15%?