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the stipulated facts and exhibits. We find the stipulated facts
accordingly, and we set forth the relevant facts in this
background section.
MedChem Products, Inc. (MedChem U.S.A.), is a Massachusetts
corporation whose principal place of business is in Woburn,
Massachusetts (Woburn). MedChem U.S.A. succeeded MedChem P.R.
following the subject years through a merger of the latter into
the former. MedChem P.R. was incorporated in Delaware on
December 8, 1987, as MedChem Puerto Rico, Inc., it changed its
name on December 22, 1987, to BioChem Products, Inc., it changed
its State of incorporation on March 1, 1992, to Massachusetts,
and it changed its name on November 25, 1992, to MedChem P.R.
MedChem P.R. and its predecessors (each hereinafter referred to
as MedChem P.R.) were always wholly owned subsidiaries of MedChem
U.S.A.
The original books and records of MedChem P.R. and MedChem
U.S.A. are maintained in Woburn on an accrual method of
accounting and on the basis of a fiscal year ending on August 31.
During each of MedChem P.R.’s taxable years ended on August 31,
1990, 1991, and 1992, all of its reported income was “intangible
property income”, sec. 936(h)(3), attributable to the sale of
Avitene, a pharmaceutical manufactured in Puerto Rico by Alcon
Puerto Rico Inc. (Alcon P.R.), an unrelated entity. Avitene is a
blood clotting drug that is manufactured from the interior
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