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companies operating in the possessions originally were subjected
to double taxation by the imposition of both the Federal
corporate income tax and the taxes levied by the possessions
governments. Tariff Act of 1913, ch. 16, sec. II, 38 Stat. 166;
Revenue Act of 1918, ch. 18, 40 Stat. 1058.
Congress perceived that the tax burden so created placed
American businesses at a competitive disadvantage when compared
with their British and French counterparts not subject to
taxation upon the profits they earned abroad unless paid back to
the home company. Congress consequently enacted the original
version of section 931 to remove that competitive disadvantage.
H. Rept. 350, 67th Cong., 1st Sess. 1 (1921), 1939-1 C.B. (Part
2) 168, 174.
Section 931 provided corporations an exclusion for
possession-source income if they met the "80-percent source" test
and the "50-percent active trade or business" test.6 Because of
6Sec. 931 provided as follows:
SEC. 931. INCOME FROM SOURCES WITHIN POSSESSIONS
OF THE UNITED STATES.
(a) General Rule.--In the case of
citizens of the United States or domestic
corporations, gross income means only gross
income from sources within the United States
if the conditions of both paragraph (1) and
paragraph (2) are satisfied:
(1) Three-year period.--If 80 percent or
more of the gross income of such citizen or
domestic corporation (computed without the
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