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is the sole criterion that a taxpayer must meet in order to be
entitled to the possession tax credit.
Petitioners observe correctly that MedChem P.R. was involved
with the Puerto Rico-based manufacturing business of Avitene by
virtue of the fact that it supplied the raw materials and
equipment necessary to manufacture the drug. Such minimal
association with a trade or business, however, does not
constitute the active conduct of a trade or business in Puerto
Rico for purposes of section 936(a). The mere fact that a
taxpayer owns property used in a trade or business is simply not
enough to characterize the taxpayer as an active conductor of
that trade or business. The taxpayer in such a situation does
not meet the requirement as to a regular, continual, extensive,
and active participant in the management and operation of the
profit-motivated activity. Nor, in fact, does such a taxpayer
subject itself to many of the economic risks and benefits of
business in general.
Here, MedChem P.R. lacked any operational or directional
control over the Avitene business. All of the business
activities connected to Avitene were directed and controlled by
Alcon P.R., out of its Puerto Rico-based operation, and by
MedChem U.S.A., out of its Woburn-based facility. In fact,
petitioners’ involvement in Puerto Rico during the 3-year period
failed even to qualify as a trade or business in Puerto Rico,
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