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basis of Bowater Inc. v. Commissioner, 101 T.C. 207 (1993), that
petitioner may net interest income against interest expense in
determining the amount of interest deduction to be allocated and
apportioned in computing combined taxable income under section
936 and section 1.861-8(e)(2), Income Tax Regs. See also General
Portland Cement Co. v. United States, 628 F.2d 321 (5th Cir.
1980).
II. Discussion
A. Section 936 and Section 1.936-6(b)(1) Q&A 1 & 12, Income
Tax Regs.
Under the statutory scheme of section 936, a U.S.
corporation, such as CRI, which elects the application of section
936 and meets certain requirements with respect to operating in a
possession, is entitled to a credit against the U.S. tax on
certain possession-related income. Section 936 provides the
following:
SEC. 936(a). Allowance of Credit.--
(1) In General.-- * * * if a domestic corporation
elects the application of this section * * * there
shall be allowed as a credit against the tax imposed by
this chapter an amount equal to the portion of the tax
which is attributable to the sum of--
(A) the taxable income, from sources without
the United States, from--
(i) the active conduct of a trade or
business within a possession of the United
States, or
(ii) the sale or exchange of
substantially all of the assets used by the
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