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.

Juanita and sam attend a beach party and notice that the local beach appears to have a great deal more trash washed up on shore than it did when they were young. the water doesn't appear nearly as clear, and there seems to be less evidence of small water creatures living in the shallows. an afternoon at the local library convinces them that one major cause is the new factory nearby. after some discussion, they decide their next step should be identifying the cause of the changes identifying the problem picketing the guilty factory lobbying their elected representatives to complain about the problem talking to a local environmental group about solutions