[Code of Federal Regulations] [Title 26, Volume 10] [Revised as of April 1, 2004] From the U.S. Government Printing Office via GPO Access [CITE: 26CFR1.957-3] [Page 364-365] TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED) PART 1_INCOME TAXES--Table of Contents Sec. 1.957-3 Corporations organized in United States possessions. (a) General rule. For purposes of sections 951 through 964, a corporation created or organized in a possession of the United States or under the laws of a possession of the United States shall not be treated as a controlled foreign corporation for any taxable year if-- (1) 80 percent or more of the gross income of such corporation for the 3-year period immediately preceding the close of the taxable year or for such part of such 3-year period as such corporation was in existence or for such part of such 3-year period as occurs on and after the beginning of such corporation's first annual accounting period beginning after December 31, 1962, whichever period is shortest, was derived from sources within a possession of the United States; and (2) 50 percent or more of the gross income of such corporation for such period, or for such part of such period, was derived from the active conduct within a possession of the United States of one or more trades or businesses constituting-- (i) The manufacture or processing of goods, wares, merchandise, or other tangible personal property; (ii) The processing of agricultural or horticultural products or commodities (including but not limited to livestock, poultry, or fur- bearing animals); (iii) The catching or taking of any kind of fish, or any manufacturing or processing of any products or commodities obtained from such activities; (iv) The mining or extraction of natural resources, or any manufacturing or processing of any products or commodities obtained from such activities; or (v) The ownership or operation of hotels. (b) Special provisions. For purposes of section 957(c) and this section-- (1) United States defined. The term ``United States'' includes only the States and the District of Columbia. (2) Possession of the United States defined. The term ``possession of the United States'' includes Guam, the Midway Islands, the Panama Canal Zone, the Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and Wake Island. (3) Determination of source of gross income. Whether gross income of a corporation referred to in paragraph (a) of this section is derived from sources within a possession of the United States shall be determined by the application of the provisions of Sec. 1.955-6 except that, for purposes of making such determination, the term ``produced'', as used in paragraph (d)(2) of Sec. 1.955-6, shall also include the activities described in paragraph (a)(2)(i) through (iv) of this section and the activities considered, under subparagraph (4) of this paragraph, to be qualifying trades or businesses. (4) Manufacturing or processing. The trades or businesses which qualify under the provisions of paragraph (a)(2) of this section shall include, but not be limited to, the manufacture of tabulating cards, paper tablets or pads, facial tissues, and paper napkins from rolls of paper; the manufacture of such household products as liquid starch by mixing quantities of the ingredients which are used to produce liquid starch; and the manufacture of juices and drinks from fruit concentrates. In the application of paragraph (a)(2) of this section, proper regard shall be given to the classification of a trade or business as a manufacturing or processing activity under the applicable economic incentive law of the possession involved. The fact that an activity of a corporation qualifies as a trade or business for purposes of paragraph (a) [[Page 365]] of this section does not necessarily mean that such activity constitutes a substantial transformation of property within the meaning of paragraph (a)(4) of Sec. 1.954-3 for purposes of determining any foreign base company income of such corporation. [T.D. 6683, 28 FR 11184, Oct. 18, 1963]