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explanatory statement is helpful in explaining the test of the
first prong, in the instant cases EAPR has met that test.
We conclude that respondent’s legislative history analysis
does not add even a makeweight to respondent’s view of the law.
However, the legislative history (in this instance,
primarily the sequence of events) does tell us something. The
Senate amendment does not refer to section 954 in its version of
proposed section 936(h). The Conference Committee added
paragraph (5) to section 936(h), and specifically made
satisfaction of the second prong depend on “the meaning of
subsection (d)(1)(A) of section 954.”
As a result, in order to understand how to apply the second
prong, we must examine subsection (d)(1)(A) of section 954.
b. Legislative History--Sec. 954(d)
Enacted by the Revenue Act of 1962, section 954(d) is part
of subpart F of part III of subchapter N of chapter 1. Through
subpart F, the Congress sought to limit the tax-deferral
abilities of certain foreign corporations--those meeting the
definition of a “controlled foreign corporation”. Vetco, Inc. v.
Commissioner, 95 T.C. 579, 585-586 (1990). Under subpart F
(secs. 951 through 964), a U.S. shareholder of a “controlled
foreign corporation” generally must include in gross income a pro
rata share of the corporation’s foreign base company income,
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