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States. However, it is not necessary that every item
of property transferred be used outside of the United
States. As long as the primary managerial and
operational activities of the trade or business are
conducted outside of the United States and
substantially all of the transferred assets are located
outside the United States, incidental items of
transferred property located in the United States may
be considered to have been transferred for use in the
active conduct of a trade or business outside of the
United States.
(5) Use in the trade or business. Whether
property is used or held for use in a trade or business
must be determined under all the facts and
circumstances. In general, property is used or held
for use in a foreign corporation’s trade or business if
it is--
(i) Held for the principal purpose of
promoting the present conduct of the trade or business;
(ii) Acquired and held in the ordinary
course of the trade or business; or
(iii) Otherwise held in a direct
relationship to the trade or business. * * *
As to Congress’ intent for section 936, the roots of that
section are found in section 262 of the Revenue Act of 1921, ch.
136, 42 Stat. 271, which exempted a U.S. corporation from Federal
taxes on foreign-source income if it derived at least 80 percent
of its income from sources within a U.S. possession and satisfied
certain other requirements. The requirements for exemption from
tax as a possession corporation were generally carried forward
into section 931 of the Internal Revenue Code of 1954. Congress
promulgated section 931 and its predecessors to encourage
American businesses to invest in U.S. possessions. See G.D.
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