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the exclusion, and because dividends received by a domestic
corporation from its wholly owned possessions subsidiary were not
eligible for the intercorporate dividends received deductions
under section 246(a)(2)(B), possessions corporations amassed
large amounts of income not repatriated to the United States.
To encourage investment of possessions-source earnings in
the United States, Congress, in 1976, enacted section 936. Tax
Reform Act of 1976, Pub. L. 94-455, sec. 1051, 90 Stat. 1643.
The Tax Reform Act of 1976 revised prior law, providing for a
more efficient system for exemption of possessions corporations
in order to prevent the possessions from losing a significant
source of capital. In place of the exemption mechanism contained
in section 931, section 936 permits a U.S. corporation to elect a
tax credit to offset the U.S. tax on its possessions income.
6(...continued)
benefit of this section) for the 3-year
period immediately preceding the close of the
taxable year (or for such part of such
period immediately preceding the close of
such taxable year as may be applicable) was
derived from sources within a possession of
the United States; and
(2) Trade or business.--If--
(A) in the case of such
corporation, 50 percent or more of its
gross income (computed without the
benefit of this section) for such period
or such part thereof was derived from
the active conduct of a trade or
business within a possession of the
United States * * *
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