Duke, a U.S. corporation, owns all the stock in Taiwan, a foreign corporation. In the current year, Taiwan pays to Duke a $125,000 dividend from which $12,500 in foreign taxes are withheld. Taiwan's operating results indicate $1 million of earnings and profits (before payment of the dividend) and $300,000 of foreign income taxes. Assume Duke has no other foreign source income and its U.S. taxable income (excluding the dividend) is $1 million.

a. What is the amount of Duke's deemed paid foreign tax credit?

b. To what extent is Duke's U.S. tax liability increased as a result of the dividend (assume a 34% U.S. corporate tax rate)?

c. How would your answers to Parts a and b change if the $125,000 dividend were instead paid to U.S. citizen Donna (instead of to Duke), whose marginal tax rate is 35%? Assume the foreign-source dividend does not qualify for the 15% reduced tax rate.