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qualifies for the possession tax credit.11 Respondent argues
primarily that MedChem P.R. did not meet the active conduct of a
trade or business requirement of section 936(a)(2)(B).
Petitioners contend that all of MedChem P.R.’s taxable income
qualifies for the possession tax credit. Petitioners argue that
MedChem P.R. met the active conduct of a trade or business
requirement because, petitioners assert, all of MedChem P.R.’s
income was derived from its sales in Puerto Rico of Avitene that
it manufactured in Puerto Rico. Petitioners assert that, in
addition to that sales income, MedChem P.R. had significant
business activities in Puerto Rico. Petitioners assert that
MedChem P.R.’s business activities in Puerto Rico included
purchasing the raw materials necessary for Avitene, monitoring
manufacturing and inventory levels of Avitene, and owning all of
the manufacturing equipment, raw materials, work-in-process, and
finished goods related to Avitene. Petitioners assert that
MedChem P.R. performed its business activities in Puerto Rico
through its common law employees consisting of its officers, the
Kelly employees, and employees who worked concurrently for
MedChem P.R. and either MedChem U.S.A. or Alcon P.R. Petitioners
assert that MedChem P.R. also performed significant business
11 As an alternative to this determination, respondent
determined that MedChem P.R.’s income was taxable to the MedChem
Group under sec. 482(a). Because respondent does not pursue this
argument on brief, we consider it conceded.
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