Chapter 25: Taxation of International Transactions Homework Submission19. Some tax issues that Sloop must considered could be that he branch profits tax may be levied on the additional U.S. source income and the additional U.S. source income would be subject to the U.S. Federal income tax. 27. The sourcing would be a foreign source because royalties are sourced based on where the property is used. 33.Reds dividend income in U.S. dollars would be $11,111. There is no exchange gain or loss. Red can claim an FTC for any foreign taxes withheld on the dividend. 40. U.S. taxable income: $600,000 x 34% = $204,000 The FTC limit is $37,400 ($110,000/$600,000 x $204,000), however, the actual foreign taxes are less than the FTC limit so the entire $33,800 is allowed as a credit. Net U.S. tax liability $204,000 - $33,800 = $170,200 54. Even though Martinho is a nonresident alien he would pay no tax. Any capital gains not effectively connected with a US trade or business are exempt from the tax, as long as the NRA is not present in theUS for 183 days or more during the taxable year. NRAs however are also not allowed to carryforwardany capital gains. Chapter 26: Tax Practice and EthicsHomework Submission11. Ian would not be required to pay any interest on his underpayment that he was negotiating a settlement on with the IRS. As for his tax payable amount, failure to pay the tax due as shown on a return a penalty of .5% per month (up to a maximum of 25%) is imposed on the amount of the tax. The penalty doubles if the taxpayer fails to pay the tax after receiving a deficiency notice. 24. a. 3% b. 3% c. 3% d. 2% 28. a. Olivia is liable for her failure to file penalty as well as her failure to pay the penalty. b. Failure to pay penalty (1/2 of 1% per month x 8 months) $1,600 Plus: Failure to file penalty (5% per month x 5 months)* $10,000 Less: Failure to pay penalty for same period (1,000) 10,600 Total penalties $10,600 41. a. Luis is only entitled to receive $10,000, because the refund claim was not filed within three years of the later of the due date or the actual filing of the return. b. Luis is not entitled to interest on the $10,000. c. The refund claim should have been filed by April 15, 2009, to allow a refund of the full $25,000 plus interest. 45. a. The tax adviser would not be subject to any penalties for suggesting to the client various means by which to acquire excludible income as long as means involved legal activities. b. The tax adviser could be charged with a criminal violation of the tax statutes for attempting to evade or defeat the tax. c. The tax adviser would be subject to a civil income tax preparer penalty. The adviser could be charged with a penalty for aiding and abetting an understatement of tax liability, which is a civil penalty. In addition, the tax adviser could also be charged with a criminal penalty.d. Depending on the advisers office practices,the tax adviser could be charged with a negligence penalty. e. There would probably be no taxpayer penalty, but the preparer is liable to the client for any interest and penalties the client incurs because of their failure to complete their job satisfactorily.

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