Blue sky, inc., a u.s. corporation, is a manufacturing concern that sells most of its products in the united states. it also conducts some business in the european union through various branches. during the current year, blue sky reports taxable income of $700,000, of which $500,000 is u.s.-sourced and $200,000 is foreign-sourced. foreign income taxes paid amounted to $45,000. blue sky's u.s. income tax liability is $238,000.