- 54 -
We conclude and hold that MedChem P.R. does not meet the
“active conduct of a trade or business within a possession”
requirement of section 936(a)(2)(B). In so holding, we note that
petitioners rely erroneously on Suzy’s Zoo v. Commissioner, 114
T.C. 1 (2000), for a contrary holding. There, the taxpayer was a
corporation that sold greeting cards and other paper products
bearing copies of one or more of the taxpayer’s cartoon
characters. The taxpayer’s employees developed the characters,
and the taxpayer transferred the characters to printing companies
to print the paper products in accordance with the taxpayer’s
specifications. The printers used their own ink and paperstock,
and they held title to and bore the risk of loss of the supplies
and printed goods until the goods were sent back to the taxpayer
for its acceptance or rejection. The printers could not sell any
images of the characters, and they could not sell any of the
taxpayer’s paper products. The taxpayer argued that, for
purposes of section 263A, the printers produced the finished
goods, and it resold them. We disagreed. We held that the
taxpayer was the producer of the finished goods. We noted that
the printing of the characters onto the paper products was
ministerial and that the critical step in the manufacturing of
the finished good was the drawing of the characters. In contrast
with the situation there, where the thrust of the work as to the
finished product was performed by the taxpayer, the thrust of the
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