For our second case we were assigned a task of examining a recent case that illustrates the legal risks of associated with domestic and international business activities.  For our case we chose OMJ Phramaceuticals vs. the United States.  Congress has encouraged U.S. corporations to invest in Puerto Rico and other U.S. territories by establishing a possessions corporation system of taxation. Congress implemented that system primarily by creating the “Puerto Rico and possession tax credit,” codified in section 936 of the Internal Revenue Code. The possessions corporation system of taxation is a set of rules under which a U.S. corporation deriving qualifying income from possessions and Puerto Rico pays no income tax to the United States. As a U.S. corporation, a possessions corporation is subject to federal tax on its worldwide income. However, a special credit available under section 936 fully offsets the federal tax on income from a trade or business in Puerto Rico and from qualified possession source investment income (QPSII). A U.S. parent corporation can, in turn, offset dividends received from a wholly owned 936 subsidiary with a 100 percent dividends-received deduction, which frees the dividend income from federal tax.  This case was fairly complex however we will look at an IRAC analysis to breakdown the specifics of the case.