USAco is a domestic corporation. During the current year, USAco starts doing bus

Question

USAco is a domestic corporation. During the current year, USAco starts doing business in foreign country F. USAco's country F operations generate $100,000 of taxable income, which USAco reinvests in its country F operations. On its Form 1120, USAco will report taxable income from its country F operations of:

(a) $100,000 if the foreign operations are conducted as a branch and $0 if the foreign operations are conducted as a Subsidiary

(b) $0 if the foreign operations are conducted as a branch and $100,000 if the operations are conducted as a subsidiary

(c) $0, regardless of whether the foreign operations are conducted as a subsidiary or a branch

(d) $100,000, regardless of whether the foreign operations are conducted as a subsidiary or a branch

Explanation / Answer

The foreign subsidiary taxable income when reinvested and assumed that permanently reinvested , the same taxable income will not be included in form 1120 as taxable income of US parent company.

However, income and loss of a foreign branch will be included in the book of US parent company.

So in this case USAco will report taxable income from its country F operations of $100,000 if the foreign operations are conducted as a branch and $0 if the foreign operations are conducted as a Subsidiary. Option A is correct.

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