Problem 25-17 (LO. 3) Émma, a U.S. resident, recelved the followino income itoms

Question

Problem 25-17 (LO. 3) Émma, a U.S. resident, recelved the followino income itoms tor the ouerent tax year. Destenrins the amount of U.S.-Source income and Foreign-Source Income for each income item. If an amount is zero, enter O If required, round your answer to the nearest doller Transaction U.S.-Source Foreign-Source Income a. $600 irterest from a savings account at a Florida bank b. $5,000 dividend trom U.s. Flower Campany, a U.s. cororat oes thats c $7,000 dividand from Stern Corporation, a U.S. corporation that had $ 600 V operates solely in the eastern United States 5,000 total grass income of $4,000,000 fram the sctiwe canduct of a forsign trade ar busiress for the immisdiately preceding thee tax years. Stem's total gross incorne for the same period min $5,000,000 1,000,000 X 4,007,000 X d. $10,000 dividend from Irternstional Consolidasted. Ine, foreigr poration that had gross income of $4,000,000 efectively connected with the condluct of a U.S trade or business for the memediately preceding three tax yiars Inber nationals totl groes Incomse for the same period was $12,000,000 $5,000 Interest on warren Corporation bonds, warren is o u.s. corporation that derhved $6,000,000 of its gross income for the memediately preceding theree tax years fram operation of an actiwe foreign busiwes, and Warren's total gruss incume for this same 10,000 e· 1,200,000x 6.005,000 x perind was $7,200,000

Explanation / Answer

Solution:

a.$600 U.S.-source.The interest income is received from a domestic bank.

b.$5,000 U.S.-source. Dividends from a domestic corporation generally are U.S.-source.

c.$7,000 U.S.-source. Dividends from a domestic corporation generally are U.S.-sourceincome. The foreign business exception does not apply to dividends from a U.S. corporation.

d.$3,333 U.S.-source. Dividends from a foreign corporation may be U.S.-source if the pay or earns significant (>25%) U.S.-source income based on a look-through approach [i.e.,$10,000 × ($4,000,000/$12,000,000)].

e.$5,000 foreign-source. Warren Corporation is a domestic corporation that meets the 80%foreign business requirement. Of its gross income for the immediately preceding three-yearperiod, 83.3% ($6,000,000/$7,200,000) was from the active conduct of a foreign trade or business

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