- 67 -
contract manufacturing is not to be taken into account for any
other purposes, including specifically the analysis of whether
the possessions corporation is the manufacturer for purposes of
our second prong analysis. Respondent takes the position that
both the cited statute and the cited regulation apply only to the
first prong.
On the basis of the analysis set forth supra (B.4.b.ii),
relating to the “active conduct of a trade or business” issue, we
conclude that respondent’s contention favors petitioners to some
extent. That is, the presence of a restriction on contract
manufacturing when evaluating the first prong, and the absence of
that term in the second prong, may mean that contract
manufacturing is not restricted under the second prong.
Neither side has drawn our attention to, and we have not
found, caselaw interpreting the provisions of either section
936(h)(5)(B)(ii) or section 954(d)(1)(A) as relevant to the
instant cases.14 Accordingly, we examine the origins of these
14See, e.g., Vetco, Inc. v. Commissioner, 95 T.C. 579, 594
(1990), in which we ruled that we would “not address whether
* * * [the subsidiary corporation] was engaged in manufacturing”,
because our determination under sec. 954(d)(2) made it
unnecessary to answer the manufacturing question. See also id.
at 580.
In Dave Fischbein Manufacturing Co. v. Commissioner, 59 T.C.
338 (1972), we held that activities of a subsidiary of the
taxpayer amounted to manufacturing within the meaning of sec.
954(d)(1)(A). In Webb Export Co. v. Commissioner, 91 T.C. 131
(1988), we concluded that activities of a taxpayer amounted to
production within the meaning of sec. 954(d)(1)(A), and we held
(continued...)
Page: Previous 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 NextLast modified: May 25, 2011