Kilarney, a foreign corporation, is incorporated in Country J and is 100%-owned by Maine, a domestic corporation. During the current year, Kilarney earns $500,000 from its Country J operations and $100,000 from its U.S. trade or business activities. None of the Country J income is Sub part F. None of Kilarney’s after-tax profits are distributed as a dividend to Maine.
a. Explain how Kilarney is taxed in the U.S. and whether any of Kilarney’s income is taxed to Maine.
b. How would your answer change if Kilarney earned none of its income from U.S. operations and paid a $50,000 dividend to Maine?