Question

Herbert Tools, Inc. is incorporated in Bermuda. A wholly-owned subsidiary of Herbert, Stephanie Tools Management, is located in Connecticut. Stephanie provides all of the headquarters functions for Herbert. For US tax purposes, Herbert Inc. is a:

a. Controlled foreign corporation (CFC)
b. Domestic corporation
c. Foreign corporation
d. Branch of a foreign corporation

Answer 1

For US tax purposes, Herbert Tools, Inc., which is incorporated in Bermuda, is classified as a Foreign corporation, not affected by its wholly-owned subsidiary's location in Connecticut.

Step-by-step explanation:

The {{question}} asked is related to US tax classification for corporations. According to the scenario provided, Herbert Tools, Inc. is a company incorporated in Bermuda and has a wholly-owned subsidiary in Connecticut named Stephanie Tools Management that handles headquarters functions for Herbert. For US tax purposes, Herbert Inc. would be classified as a c. Foreign corporation.

Foreign corporations are defined for US tax purposes as entities that are not created or organized in the United States or under the law of the United States or any state. Since Herbert Tools, Inc. is incorporated in Bermuda, it would be considered a foreign corporation, regardless of the location of its subsidiary. The subsidiary itself, being located and presumably organized under U.S. law, would not alter the tax status of the parent company, Herbert Tools, Inc.