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motivated activity in that possession. Cf. Commissioner v.
Groetzinger, 480 U.S. [23,] 26 [(1987)]; Higgins v.
Commissioner, 312 U.S. [212,] 217 [(l941)]; 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 underlying a
manufacturing contract may be imputed to a taxpayer only to
the extent that the performance of those services is
adequately supervised by the taxpayer’s own employees.
Another source of guidance may be found in the
interpretation of “active conduct of a trade or business” in the
provisions dealing with Western Hemisphere Trading Corporations,
hereinafter sometimes referred to as WHTCs. The WHTC provisions
existed in the Code for a substantial portion of the history of
section 936 and its predecessors. The WHTC provisions were
enacted by sections 105(b) and 141 of the Revenue Act of 1942 as
sections 15(b) and 109, I.R.C. 1939. Pub. L. 77-619, 56 Stat.
798, 806, 838. Under these provisions, a domestic corporation
qualified for the WHTC exemption only if (1) all of its business
was conducted in the Western Hemisphere, (2) it derived at least
95 percent of its gross income from sources outside the United
States, and (3) it derived at least 90 percent of its gross
income “from the active conduct of a trade or business.” Sec.
109(b), I.R.C. 1939.
WHTCs were exempt from the corporate surtax until the
Revenue Act of 1950, Pub. L. 81-994, 64 Stat. 906, 915, 920,
which replaced the exemption (sec. 121(c) of the Act) with a
credit computed as a specified percentage of normal-tax net
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