The Limited, Inc., and Consolidated Subsidiaries - Page 16

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          II.  Internal Revenue Code and Regulations                                  
               The principal provisions of the Internal Revenue Code at               
          issue are sections 951 and 956.  Sections 951 and 956 are found             
          in subpart F of part III, subchapter N, chapter 1 of the Internal           
          Revenue Code (subpart F).  Subpart F concerns itself with                   
          controlled foreign corporations.  The term “controlled foreign              
          corporation” is defined in section 957(a).7  Section 951 provides           
          that each U.S. shareholder of a controlled foreign corporation              
          shall include in gross income certain amounts, including “his pro           
          rata share (determined under section 956(a)(2)) of the                      
          corporation’s increase in earnings invested in United States                
               In pertinent part, section 956 provides:                               
               (a) General Rules.--For purposes of this subpart--                     
                    (1) Amount of investment.  The amount of                          
                    earnings of a controlled foreign corporation                      

          7    Sec. 957(a) provides:                                                  
               General Rule.--For purposes of this subpart, the term                  
               “controlled foreign corporation” means any foreign                     
               corporation if more than 50 percent of--                               
                    (1) the total combined voting power of all classes                
               of stock of such corporation entitled to vote, or                      
                    (2) the total value of the stock of such                          
               is owned (within the meaning of section 958(a)), or is                 
               considered as owned by applying the rules of ownership                 
               of section 958(b), by United States shareholders on any                
               day during the taxable year of such foreign                            

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