1. USAco, a domestic corporation, is a wholly-owned subsidiary of FORco, a foreign corporation. USAco’s only assets are cash of $200,000, accounts receivable of $200,000 and its U.S. manufacturing plant worth $500,000. USAco has no liabilities. FORco sells USAco to an independent U.S. buyer.

2. Is FORco’s sale of USAco subject to withholding under FIRPTA? Explain.
Would your answer change if USAco had a liability of $300,000 in the form of a mortgage on the U.S. manufacturing plant?
3. Cholati is a foreign corporation that produces fine chocolates for sale worldwide. Cholati markets it chocolates in the United States through a branch sales office located in New York City. During the current year, Cholati’s effectively connected earnings and profits are $3 million, and its U.S. net equity is $6 million at the beginning of the year, and $4 million at the end of the year. In addition, a review of Cholati’s interest expense account indicates that it paid $440,000 of portfolio interest to an unrelated foreign corporation, $200,000 of interest to a foreign corporation which owns 15% of the combined voting power of Cholati’s stock, and $160,000 of interest to a domestic corporation.
Compute Cholati’s branch profi ts tax, and determine its branch interest withholding tax obligations. Assume that Cholati does not reside in a treaty country.
4. Wheelco, a foreign corporation, manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in the United States through Wheely, a wholly-owned U.S. marketing subsidiary that derives all of its income from U.S. business operations. Wheelco also has a creditor interest in Wheely, such that Wheely’s debt to equity ratio is 3 to 1, and Wheely makes annual interest payments of $60 million to Wheelco. The results from Wheely’s first year of operations are as follows: