Flora Corporation, a U.S. corporation that manufactures imitation flowers owns 100% of the stock of Danica Corporation, a foreign sales subsidiary that was organized in Year 1. It contributed $2,000,000 in exchange for the Danica stock. During Year 1, Danica had $60 million of foreign base company sales income, paid $12 million in foreign income taxes, and did not distribute any dividend. During Year 2, Danica had no earnings and profits, paid no foreign income taxes, and distributed a $48 million dividend which was subject to 10% foreign withholding tax. The U.S. corporate tax rate is 35%.

1. For Year 1, what is the amount of Flora Corporation's Subpart F income inclusion?

a) $60 million b) $48 million c) $72 million d) 0

2. For Year 1, what is the amount of foreign source income that Flora Corporation would include in its gross income and which category of income would it be?

a) $48 million Active b) $60 million Active c) 0 d) $72 million Passive

3. For Year 1, what is Flora Corporation's amount of pre-credit U.S. tax?

a) $21 million b) $16.8 million c) 0 d) $25.2 million

4. For Year 1, what is Flora Corporation's Foreign Tax Credit, if any?

a) $12 million b) $4.2 million c) 0 d) $16 million

5. For Year 1, what is Flora Corporation's U.S. tax due?

a) $9 million b) $21.2 million c) $14.6 million d) 0

6. For Year 2, what amount of the $48 million distribution is subject to U.S. taxation?

a) $48 million b) $43.2 million c) 0 d) $24 million

7. For Year 2, how much of a deemed paid credit can be claimed on the $48 million distribution?

a) $4,800,000 b) 0 c) $9,600,000 d) $14,400,000

8. For Year 2, may Flora Corporation claim a Direct Foreign Tax Credit and if yes, how much of a credit may it claim?

a) 0 b) Yes, $12 million c) Yes, $4,800,000 d)Yes, $9,600,000

9. At the end of Year 2, what is Flora Corporation's balance in its basis in Danica Corporation's stock and in Previously Taxed Income?

a) 0 Basis, $2 mil PTI b)$50 mil Basis, 0 PTI c)$2 mil Basis, $2 mil PTI d)$2 mil Basis, 0 PTI