. To receive tax exemption, corporations doing business in a U.S.
Consistent with the fact they are excluded from a federal consolidated return, section 936 possessions corporations
are generally excluded from the water's-edge group.
2002-37.These corporations include FSCs, IC-DISCs, S corporations, electing S corporations, personal service corporations, controlled foreign corporations (CFCs), personal CFCs, certain tax-exempt organizations, possessions corporations
, certain cooperative associations and certain corporations with required tax years.
is prepared every two years on the activities of domestic corporations that qualify for a possession's tax credit by deriving at least 80 percent of gross income from sources within a qualifying U.S.
Observation: The court has given taxpayers greater flexibility in avoiding the application of the subpart F provisions; however, this ruling can have repercussions in other situations in which the determination of whether an entity is engaged in manufacturing is relevant, such as with foreign sales corporations and possessions corporations
. --Kenneth Kral, CPA, international tax partner, Jack Serota, Esq., international tax manager and Sophie Young, international tax associate, at Price Waterhouse, New York City.
. The provisions for the U.S.
Internal Revenue Code (IRC) allowed 936 corporations (Possessions Corporations
) to avoid paying federal taxes legally.
The proposed regulations also produce inconsistent results between the treatment of possessions corporations
that elect the profit-split method and those that elect the cost-sharing method.
Because possessions corporations
are domestic corporations, they are subject to U.S.
export sales by possessions corporations
. Section 936 permits a separate cost-sharing election for exports, with the intent that the cost-sharing method provides a greater return to the possessions corporation
than the profit-split method.
Code concerning transfers of property to foreign corporations or "possessions corporations
" had a built-in defect--it allowed for a shift of profits to a foreign jurisdiction in a manner not consistent with a comprehensive taxation system which generally seeks to tax all income, particularly in obvious circumstances.
: Since 1921, corporations earning most of