- 43 -
On the basis of our understanding of the legislative record,
we believe that Congress promulgated the “active conduct of a
trade or business” requirement of section 936(a) intending to
prevent a domestic corporate taxpayer from availing itself of the
possessions tax credit unless it established and regularly
operated an employment-producing, profit-motivated business
activity in a U.S. possession. We also believe that Congress
expected the taxpayer to participate meaningfully in the
management and operation of that activity and to invest
significantly in that activity, the expected result of which
would be to strengthen the economy of the possession where the
activity was located. In light of Congress’ intent for section
936, the Secretary’s interpretations of the subject phrase for
purposes of other sections of the Code, and the Supreme Court’s
interpretation of the phrase “trade or business” in section
162(a), we believe that, for purposes of section 936(a), a
taxpayer actively conducts a trade or business in a U.S.
possession only if it participates regularly, continually,
extensively, and actively in the management and operation of its
profit-motivated activity in that possession. Cf. Commissioner
v. Groetzinger, 480 U.S. at 26; Higgins v. Commissioner, 312 U.S.
at 217; Stanton v. Commissioner, 399 F.2d 326, 329-330 (5th Cir.
1968), affg. T.C. Memo. 1967-137. We also believe that, for the
purpose of this participation requirement, the services
Page: Previous 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 NextLast modified: May 25, 2011