1. HKco is a wholly owned Hong Kong subsidiary of USAco, a domestic corporation.
USAco sells widgets to HKco, which then resells them to Korean customers. In addition, USAco pays HKco a fee for fi nding materials in Japan that USAco buys as a component for its widgets. HKco invests all its profi ts in certifi cates of deposit at the Bank of Hong Kong. What types of Subpart F income must USAco report as a result of its ownership of HKco?
2. Do any of the following foreign corporations qualify as controlled foreign corporations? Explain.
(a) Two U.S. persons each own 26% of FORco1, with foreign persons owning the remaining 48%.
(b) One hundred unrelated U.S. persons each own 1% of FORco2.
(c) One U.S. person owns 47% of FORco3, a second U.S. person owns 5% of FORco3, and foreign persons own the remaining 48% of FORco3.
3. Chris, a nonresident alien, owns fi ve percent of USAco, a domestic corporation. USAco pays Chris a $1,000 dividend during the current year. Chris also purchases a bond issued by USAco, and receives a $1,000 payment. USAco derives over 90 percent of its gross income from its business operations in Canada. Are there any U.S. withholding requirements with respect to these interest and dividend payments?
4. USAco, a domestic corporation, is a wholly-owned subsidiary of FORco, a foreign corporation. USAco’s only assets are cash of $200,000, accounts receivable of $200,000 and its U.S. manufacturing plant worth $500,000. USAco has no liabilities. FORco sells USAco to an independent U.S. buyer. Is FORco’s sale of USAco subject to withholding under FIRPTA? Explain. Would your answer change if USAco had a liability of $300,000 in the form of a mortgage on the U.S. manufacturing plant?
5. Rick Rocker, a citizen and resident of country F, conducts a three-concert tour in the United States. A multi-talented individual, Rocker sells tickets to his concert from the ticket booth before his concert begins. During intermission, he sells beer from the beer stand. Afterwards, Rocker sells T-shirts at the concession stand. Is Rocker engaged in a U.S. trade or business? Explain. If Rocker is engaged in a U.S. trade or business, what income is subject to U.S. tax?