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Grump Resorts, a U.S. corporation, operates resort hotels in many countries of the Caribbean, but does not operate in the U.S. By the end of 2010, Grump owned properties in various foreign countries with an adjusted basis of $10,000,000 and a value of $30,000,000. In April 2011, Grump acquired 100% of Paradise Co. (“Paradise”), an Islandian corporation for $80,000,000. Paradise held non-business portfolio assets valued at $10,000,000, equipment used in a U.S. trade/business valued at $15,000,000 and U.S. real property valued at $55,000,000. In January 2012, Casino, a citizen and resident of Islandia and a shareholder of Grump, realized a profit of $1,000,000 from the sale of shares in Grump. Is the gain realized by Casino subject to U.S. income tax and why? If so, how would the income be taxed (assume the value of the assets remained unchanged from 2010 until 2012)?

Grump Resorts, a U.S. corporation, operates resort hotels in many countries of the Caribbean, but does not operate in the U.S. By the end of 2010, Grump owned properties in various foreign countries with an adjusted basis of $10,000,000 and a value of $30,000,000. In April 2011, Grump acquired 100% of Paradise Co. (“Paradise”), an Islandian corporation for $80,000,000. Paradise held non-business portfolio assets valued at $10,000,000, equipment used in a U.S. trade/business valued at $15,000,000 and U.S. real property valued at $55,000,000. In January 2012, Casino, a citizen and resident of Islandia and a shareholder of Grump, realized a profit of $1,000,000 from the sale of shares in Grump.

Is the gain realized by Casino subject to U.S. income tax and why? If so, how would the income be taxed (assume the value of the assets remained unchanged from 2010 until 2012)?

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