Q1. Ramy Corporation, a U.S Corporation, incorporates Amr Corporation, a new wholly owned entity in Germany. Under both U.S. and German law, this entity is a corporation. Ramy Corporation faces a 35% U.S. Tax rate and Amr Corporation faces a 20% German Tax rate. Germany also imposes a 5% withholding tax on dividends. Amr earns $1,500,000 in net profits from its German activities.
How much U.S. income tax will Ramy Corporation pay for the current year as a result of Amr Corporation's earnings, assuming (1) no dividend payment, (2) a dividend payment, and (3) characterization of the earnings as Subpart F Income. Explain.
Q2. Amr Corporation reports the following results for 2015:
Taxable Income 400,000
Federal income taxes per books 135,000
Tax Exempt Interest Income 80,000
Interest on loans to purchase tax exempt bonds 20,000
Book Depreciation exceeding tax depreciation 30,000
Net Capital Gain 25,000
Insurance Premium on life of Corporate Officer 5,000
Excess Charitable contributions carried over to next year 15,000
NOL carryover to 2015 40,000
Compute Income Per Books after Tax.
Q3. Squash Corporation has nexus in Kentucky, New York, and New Jersey. It generated the following income and deductions in 2015:
Sales (net) 7,000,000
Ordinary Operating Expenses 5,000,000
Federal Tax Depreciation 600,000
Kentucky Tax Depreciation 150,000
NY Tax Depreciation 200,000
NJ Tax Depreciation 50,000
Interest Income on Federal Obligations 200,000
Interest income on NY Obligations 100,000
Loss (Ordinary) on Disposal of NY Plant 400,000
Gain (Ordinary) on Disposal of NJ plant 500,000
NOL Carryover from 2014 800,000
A. Determine Federal Taxable Income
B. Determine NY Taxable Income
C. Determine NJ Taxable Income
D. Determine Kentucky Taxable Income
The activities in NY, NJ and Kentucky are as follows:
NY NJ Kentucky Total
Sales 1,000,000 8,400,000 5,000,000 14,400,000
Property 500,000 1,500,000 300,000 2,300,000
Payroll 800,000 3,000,000 2,000,000 5,800,000
NY uses a three factor formula under which sales, property and payroll are equally weighted. NJ uses a single factor formula that consists of sales. Kentucky uses a three factor formula under which sales are counted twice and property and payroll are equally weighted.
NY and NJ do not permit NOL Carryovers. Kentucky does permit NOL carryovers.