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Assignment 1: Unit 6 Problems
Is it possible for a foreign corporation to have nexus for state income tax purposes but not for federal income tax purposes?
USAco, a domestic corporation, wholly owns a foreign subsidiary in Hong Kong called HKco. USAco sells HKco the seven components necessary to make sunglasses. Following one page of directions written in Chinese, HKco employees put the components together to make the sunglasses for HKco’s sale throughout Europe. In order to determine whether USAco has any foreign base company sales income under Subpart F, the IRS needs to analyze whether HKco’s activities constitute manufacturing.
What procedures can the IRS employ to gather the information needed to make this determination? What if the company fails to comply with initial attempts to gather information?
USAco is the wholly owned U.S. subsidiary of ASIAco, a foreign corporation. USAco purchases automobiles from ASIAco for $20,000, and resells the automobiles for $21,000. The IRS conducts a transfer pricing examination of USAco and proposes an adjustment based on what it believes to be the arm’s length transfer price of $15,000. USAco decides to pursue the issue at both Appeals and Competent Authority under the Simultaneous Appeals Procedure (“SAP”).
Describe the SAP procedures.
Directions for Submitting Your Assignment
Compose your assignment in a Microsoft Word document and save it as Username AC559 Assignment 1 Unit 6.doc (Example: TAllen AC559 Assignment 1 Unit 6.doc). Submit your file by selecting the Unit 6: Assignment 1 Dropbox by the end of Unit 6.