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corporation elects to have section 936 apply, then that
corporation is entitled to a credit against its income tax. One
requirement for such treatment, as applied to the instant cases,
is that EAPR have derived at least 75 percent of its gross
income8 “from the active conduct of a trade or business within
* * * [Puerto Rico]”.
Section 936 does not define the term “active conduct of a
trade or business”. As far as we can tell, the Code does not
include a definition of this term as it is used in section 936.
7(...continued)
taxable year as may be applicable) was derived
from sources within a possession of the United
States (determined without regard to section
904(f)); and
(B) Trade or business.–-If 75 percent or more
of the gross income of such domestic corporation
for such period or such part thereof was derived
from the active conduct of a trade or business
within a possession of the United States.
Sec. 13227(a)(1) of the Omnibus Budget Reconciliation Act of
1993 (OBRA 1993), Pub. L. 103-66, 107 Stat. 321, 489, amended
sec. 936(a)(1) by striking “as provided in paragraph (3)” and
inserting “as otherwise provided in this section”. Although this
amendment applies to taxable years beginning after Dec. 31, 1993,
the amendment does not affect the substance of the above-quoted
portion of sec. 936(a). OBRA 1993, sec. 13227(f), 107 Stat. at
494. Thus, we have quoted sec. 936(a)(1) as amended by OBRA
1993.
8The dispute the parties have presented to us does not focus
on the numbers. Accordingly, our analysis deals with the quality
of the activity, and not with the amount or percentage of EAPR’s
gross income from the activity.
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