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Searle & Co. v. Commissioner, 88 T.C. 252, 350-351 (1987); see
also Coca-Cola Co. & Subs. v. Commissioner, 106 T.C. 1, 21
(1996). American companies operating in the possessions were
originally subjected to double taxation in the form of the
Federal corporate income tax and the taxes of the possessions.
See Tariff Act of 1913, ch. 16, sec. II, 38 Stat. 166; Revenue
Act of 1918, ch. 18, 40 Stat. 1057. Congress perceived that this
double tax burden placed American businesses at a competitive
disadvantage when compared with their British and French
counterparts which were not subject to taxation upon the profits
they earned abroad unless paid back to the home company.
Congress enacted section 931 to remove that competitive
disadvantage. See H. Rept. 350, 67th Cong., 1st Sess. 1 (1921),
1939-1 C.B. (Part 2) 168, 174. In its original form, section 931
allowed a corporation to exclude its possession-source income if
it met an “80-percent source” test and a “50-percent active trade
or business" test. Because of the exclusion, and because
dividends received by a domestic corporation from its wholly
owned possessions subsidiary were not eligible for the
intercorporate dividends received deductions under section
246(a)(2)(B), possessions corporations amassed large amounts of
income not repatriated to the United States.
In the Tax Reform Act of 1976, Pub. L. 94-455, sec. 1051, 90
Stat. 1643, Congress revised the prior law in order to provide
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