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income. Sec. 122(c) of the Act. The Internal Revenue Code of
1954 substituted for this a formula deduction resulting in a 14-
percentage-point tax rate reduction. See sec. 922, I.R.C. 1954.
The WHTC provisions, I.R.C. 1954 secs. 921 and 922, were repealed
by sec. 1052(b) of the Tax Reform Act of 1976, Pub. L. 94-455, 90
Stat. 1520, 1648.
Several opinions of this and other courts have noted the
general similarity of congressional purpose between the
possessions corporations provisions and the WHTC provisions. In
view of the WHTC provisions’ use of the term “active conduct of a
trade or business”, we believe that opinions interpreting that
term as used in the WHTC provisions are helpful in interpreting
the same term in section 936(a). As we see it, the WHTC opinions
are essentially consistent with the analysis in MedChem (P.R.),
Inc. v. Commissioner, supra.
Section 936(a)(2)(B) requires that 75 percent of the gross
income of the qualifying corporation (in the instant cases, EAPR)
be “derived from the active conduct of a trade or business within
a possession of the United States”, in the instant cases, Puerto
Rico. In comparison, the effect of the WHTC provisions was to
require that at least 90 percent of the gross income of the
qualifying corporation had been derived “from the active conduct
of a trade or business” in the Western Hemisphere outside of the
United States.
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