Lycos International, based in Miami, operates hotels and resorts in Florida, Nevada, and California. It books its hotel rooms through a travel agency that it owns. Lycos plans to relocate the travel agency to a designated country in the Caribbean to accommodate the needs of South American tourists. Following the relocation, the operating results of the travel agency (in U.S. dollars) are projected to be as follows:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $750,000
Business expenses . . . . . . . . . . . . . . . . . . . . . .   350,000
Taxable income . . . . . . . . . . . . . . . . . . . . . . . . .   400,000
Caribbean country tax . . . . . . . . . . . . . . . . . . .     20,000
Net profit (all foreign-source) . . . . . . . . . . . . . $380,000

According to plans, the travel agency would remit $100,000 of its net profits to the U.S. headquarters annually and would reinvest the remainder in its offshore operations. Lycos is considering setting up the travel agency as either a foreign branch or a foreign corporation. In the latter case, it would issue shares to foreign investors to raise capital for expansion into new overseas markets. It is reviewing the following alternatives:

• Alternative A: Wholly owned foreign branch
• Alternative B: 51% owned foreign corporation
• Alternative C: 49% owned foreign corporation

Assuming a 21% U.S. tax rate:

a. Evaluate each alternative in terms of the U.S. tax consequences to Lycos.

b. Determine which alternative is most advantageous.