Substantial valuation misstatement penalty

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Reference no: EM13488257

PROBLEM 1

USAco, a domestic corporation, owns all of the stock of FSubco, a foreign corporation. FSubco manufactures widgets and sells them at a price of $100 to USAco, which then resells the widgets to U.S. customers. USAco's gross receipts for the year are $200 million. Under what circumstances would USAco be potentially subject to the Code Sec. 6662(e) substantial valuation misstatement penalty?

PROBLEM 2

Stoolco, a domestic corporation, produces a line of low cost bar stools at its facilities in Missouri for sale throughout the United States. During the current year, Stoolco's management has decided to begin selling it stools overseas and has begun exploring the idea of establishing branch sales offi ces in some key countries in Europe and Asia. If possible, Stoolco's management would like to avoid establishing a taxable presence in these countries. 

Stoolco's management has asked you to advise them on the types of marketing activities they can conduct within these countries without creating a taxable nexus. For purposes of this analysis, assume that the United States has entered into an income tax treaty with the countries in question that is identical to the United States Model Income Tax Convention of November 15, 2006.

Reference no: EM13488257

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