Moltco, a domestic corporation, manufactures batteries for sale in the United States and abroad. Moltco markets its batteries in Europe through its wholly-owned foreign sales subsidiary, Molti. Molti was organized in Year 1, and its functional currency is the British pound (). Moltis tax attributes for its first two years of operations are as follows:

Year 1 Year 2

Taxable income....................................................................... 100 million.......... None

Subpart F income (included in 100 million)........................... 40 million. ........None

Foreign taxes attributable to Subpart F income........................ 10 million........ N/A

Actual dividend distributions (paid at end of year)..........................None...... 8 million

The pound had an average value of $1.50 during Year 1, $1.65 during Year 2, and was worth $1.60 at the end of Year 1, and $1.70 at the end of Year 2.

1.) What are the U.S. tax consequences of Joltis results from operations in Year 1 and Year 2? Assume that the dividend distribution in Year 2 was not subject to foreign withholding taxes. (Please show all work and explain your answer, thanks!)