Electronic Arts, Inc. and Subsidiaries - Page 67




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          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...)           




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