Q. Unless otherwise stated, for all problems also exercises suppose which foreign operations are corporations also are treated as such for US purposes under the check the box regulations.

California Graphics is a US corporation with $200 million of US source income also $10 million of foreign source income. In addition, California Graphics has three quarters ownership of a Canadian Partnership which has total pre-tax earnings of $30 million, all Canadian sources also subject to a 40% Canadian tax rate. The Canadian partnership repatriated $5 million of earnings back to California Graphics in the present year. For US purposes, California Graphics treats the Canadian partnership as a branch under the check the box regulations.

a. Explain how much taxable income will California Graphics report on its US tax return?

b. Suppose which, instead of electing to treat the Canadian partnership as a branch, California Graphic selects to treat it as a subsidiary for US purposes. Explain how much taxable income will California Graphics report on its US tax return?