Evans Limited is based in California and owns a 40% equity interest in its domestic subsidiary, Spicy Chicken Limited.

Spicy Chicken has earned the following profits in recent years:

2017: $500,000

2018: $800,000

These profits represent undistributed earnings for Evans Limited, which it recognizes in its books using the equity method.

Advise Evans Limited about the deferred tax consequences of these undistributable earnings.

The applicable tax rate is 30%