Chapter 25
Computational Exercises
11. LO.3 Shonda receives dividend income from the following foreign and domestic corporations in the current tax year.
Corporation
Dividends
Received
Percentage of U.S.
Income for Past 3 Years
Silver (foreign) $1,500 35%
Bronze (domestic) 1,000 20%
Copper (domestic) 2,000 80%
Determine the amount of U.S.-sourced income for each corporation.
12. LO.5 Cordeio, Inc., is a CFC for the entire tax year (not a leap year). Vancy Company, a U.S. corporation, owns 75% of Cordeio’s one class of stock for the entire year. Subpart F income is $450,000, and no distributions have been made during the year. Both entities use the calendar tax year.
a. What amount does Vancy include in gross income as a constructive dividend for the tax year?
b. Assume that Cordeio is a CFC until March 1 of the calendar tax year. What amount does Vancy include in gross income as a constructive dividend for the tax year?
13. LO.5 Enders, Inc., a domestic corporation that invests in foreign securities, reports total taxable income for the tax year of $290,000, consisting of $208,800 in
U.S.-source business profits and $81,200 of income from foreign sources. Foreign taxes of $24,000 were withheld by foreign tax authorities. Enders’s U.S. tax before the FTC is $78,000. Compute Enders’s FTC for the tax year.
14. LO.5 Klein, a domestic corporation, receives a $10,000 dividend from ForCo, a wholly owned foreign corporation. The deemed-paid FTC associated with this dividend is $3,000. What is the total gross income included in Klein’s tax return as a result of this dividend?
15. LO.6 Velocity, Inc., a foreign corporation, operates a U.S. branch. It reports the following tax results and other information for the year.
Pretax earnings effectively connected with a U.S. trade or business $900,000
U.S. corporate tax (at 34%) 306,000
Remittance to home office 400,000
Increase in U.S. net equity 194,000
a. Compute Velocity’s dividend equivalent amount for the tax year.
b. Determine Velocity’s liability for the branch profits tax for the year.
11. LO.3 Shonda receives dividend income from the following foreign and domestic corporations in the current tax year.
Corporation
Dividends
Received
Percentage of U.S.
Income for Past 3 Years
Silver (foreign) $1,500 35%
Bronze (domestic) 1,000 20%
Copper (domestic) 2,000 80%
Determine the amount of U.S.-sourced income for each corporation.
12. LO.5 Cordeio, Inc., is a CFC for the entire tax year (not a leap year). Vancy Company, a U.S. corporation, owns 75% of Cordeio’s one class of stock for the entire year. Subpart F income is $450,000, and no distributions have been made during the year. Both entities use the calendar tax year.
a. What amount does Vancy include in gross income as a constructive dividend for the tax year?
b. Assume that Cordeio is a CFC until March 1 of the calendar tax year. What amount does Vancy include in gross income as a constructive dividend for the tax year?
13. LO.5 Enders, Inc., a domestic corporation that invests in foreign securities, reports total taxable income for the tax year of $290,000, consisting of $208,800 in
U.S.-source business profits and $81,200 of income from foreign sources. Foreign taxes of $24,000 were withheld by foreign tax authorities. Enders’s U.S. tax before the FTC is $78,000. Compute Enders’s FTC for the tax year.
14. LO.5 Klein, a domestic corporation, receives a $10,000 dividend from ForCo, a wholly owned foreign corporation. The deemed-paid FTC associated with this dividend is $3,000. What is the total gross income included in Klein’s tax return as a result of this dividend?
15. LO.6 Velocity, Inc., a foreign corporation, operates a U.S. branch. It reports the following tax results and other information for the year.
Pretax earnings effectively connected with a U.S. trade or business $900,000
U.S. corporate tax (at 34%) 306,000
Remittance to home office 400,000
Increase in U.S. net equity 194,000
a. Compute Velocity’s dividend equivalent amount for the tax year.
b. Determine Velocity’s liability for the branch profits tax for the year.
Chapter 26
Computational Exercises
15. LO.6 Alexi files her tax return 20 days after the due date. Along with the return, she remits a check for $3,000, which is the balance of the tax she owes. Disregarding any interest liabilities, compute Alexi’s total penalties for this period.
16. LO.6 Marcella (a calendar year taxpayer) purchased a sculpture for $5,000. When the sculpture is worth $12,000 (as later determined by the IRS), Marcella donates it to the Peoria Museum of Art, a public charity. Based on the appraisal of a friend, Marcella deducts $38,000 for the donation. Because Marcella was in the 28% tax bracket, overstating the deduction by $26,000 results in a tax underpayment of $7,280. Compute Marcella’s overvaluation penalty.
17. LO.6 Rivera underpaid her income tax by $45,000. The IRS can prove that $40,000 of the underpayment was due to fraud.
a. Determine Rivera’s civil fraud penalty.
b. Rivera pays the penalty five years after committing the fraudulent act. Her aftertax rate of return on available cash is 9%. What is the present value of Rivera’s penalty?
18. LO.7 On June 15, 2014, Sheridan filed his 2013 income tax return reflecting a tax of $10,500. On October 5, 2015, he filed an amended 2013 return showing an additional $6,400 of tax, which he paid with the amended return. On August 22, 2017, he filed a claim for a refund of $7,000. How much Federal income tax can
Sheridan recover on the amended return?
15. LO.6 Alexi files her tax return 20 days after the due date. Along with the return, she remits a check for $3,000, which is the balance of the tax she owes. Disregarding any interest liabilities, compute Alexi’s total penalties for this period.
16. LO.6 Marcella (a calendar year taxpayer) purchased a sculpture for $5,000. When the sculpture is worth $12,000 (as later determined by the IRS), Marcella donates it to the Peoria Museum of Art, a public charity. Based on the appraisal of a friend, Marcella deducts $38,000 for the donation. Because Marcella was in the 28% tax bracket, overstating the deduction by $26,000 results in a tax underpayment of $7,280. Compute Marcella’s overvaluation penalty.
17. LO.6 Rivera underpaid her income tax by $45,000. The IRS can prove that $40,000 of the underpayment was due to fraud.
a. Determine Rivera’s civil fraud penalty.
b. Rivera pays the penalty five years after committing the fraudulent act. Her aftertax rate of return on available cash is 9%. What is the present value of Rivera’s penalty?
18. LO.7 On June 15, 2014, Sheridan filed his 2013 income tax return reflecting a tax of $10,500. On October 5, 2015, he filed an amended 2013 return showing an additional $6,400 of tax, which he paid with the amended return. On August 22, 2017, he filed a claim for a refund of $7,000. How much Federal income tax can
Sheridan recover on the amended return?