DC, a Delaware Corporation, is sole shareholder of another Delaware corporation (DS) and a country Z corporation (FS). FS purchases goods manufactured by DS in the United States and resells them to an independent distributor in country Z, which resells them to customers in country Z and several other foreign countries. FS directs DS to ship the goods directly to the distributor's customers. Because the purchases and resales are made under long-term contracts, FS carries on only minimal activities, and it has no trade or business or permanent establishment in the United States or any other country. It pays no income taxes to country Z, under whose laws FS is incorporated, because country Z taxes local corporations only on income that is from country Z sources or attributable to a permanent establishment in the country. Because it has no U.S. trade or business or permanent establishment in any country, it escapes tax worldwide.

How is FS's income treated for U.S. tax purposes?

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For US tax purposes the income of FS the foreign corporation would likely be subject to taxation in ... View the full answer