Seagate Technology, Inc. - Page 11




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          on the sale of property that gives rise to dividends, interest,             
          rents and annuities as FPHCI).                                              
               Consistent with the general congressional scheme of not                
          including a CFC’s income from conduct of an active trade or                 
          business within the definition of subpart F income, the                     
          regulations specifically exclude from the FPHCI definition gain             
          from the sale of the operating assets of a CFC’s active trade or            
          business.  See sec. 954(c)(1)(B)(iii); sec. 1.954-2T(e)(3)(iv),             
          (v), and (vi), Temporary Income Tax Regs., 53 Fed. Reg. 27505               
          (July 21, 1988).  Thus, under the subpart F income regime and               
          the definition of FPHCI, a CFC’s gain on the sale or exchange of            
          property used in its trade or business does not constitute                  
          FPHCI.                                                                      
               The parties in this case agree that any gain from Conner               
          Malaysia’s sale of the assets constitutes gain from the sale of             
          operating assets used in its trade or business and that,                    
          therefore, such gain does not constitute FPHCI.  The issue                  
          before us is whether the portion of the gain relating to the                
          increase in the value of the Read-Rite shares during the period             
          in which Conner Malaysia was prohibited from selling the stock              
          should be characterized by reference to the sale of the assets              











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