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unrelated retailers. The CBO's that purchase fountain syrup sell
the fountain syrup to unrelated retailers.
CRI is both the possessions corporation and the electing
corporation within the meaning of section 936. Under section
1504(b), a section 936 possessions corporation is required to
file a separate U.S. corporate return and is therefore ineligible
to join in the parent corporation's consolidated return.
The issues before us for partial summary judgment arise out
of the section 936 tax credit, which is designed to encourage
investment and employment in Puerto Rico and other possessions of
the United States. The amount of the credit is derived from the
amount of the "combined taxable income" (sometimes referred to as
CTI) derived from the "possession product". The primary dispute
in the instant case involves the dividing of income and expenses
between related parties. More specifically, the dispute involves
whether the use of a formulaic calculation, or rather a
calculation based upon factual relationships, is mandated in
order to obtain the proper allocation and apportionment of
expenses to the gross income derived from the sale of a component
possession product by a U.S. affiliate.
Petitioner filed its Federal income tax returns for taxable
years 1983 through 1986 relying in part on section 1.936-6(b)(1),
Q&A-12, Income Tax Regs. (Q&A-12). Respondent issued a
deficiency notice to petitioner in 1991 for taxable years 1983
and 1984. Petitioner filed a motion for partial summary judgment
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