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A. Taxation of Interest Received by
Foreign Corporations--In General
Except as provided in section 881(c), section 881(a) imposes
a tax of 30 percent on, inter alia, amounts received as interest
from sources within the United States by a foreign corporation63
to the extent the interest received is not effectively connected
with the conduct of a trade or business within the United States
(noneffectively connected interest). Section 1442(a) generally
requires the payor of interest subject to the tax imposed by
section 881(a) to deduct and withhold that tax at the source.64
Respondent contends, and petitioner does not dispute, that
during the years at issue the interest in question that was
received from Radcliffe and BOT was from sources within the
United States. See sec. 861(a)(1); sec. 1.861-2(a)(1) and (2),
Income Tax Regs. Nor does petitioner dispute respondent's posi-
tion that during the years at issue the foreign corporations that
are treated as having received interest from Radcliffe and/or BOT
under respondent's theory of these cases (viz., Intercontinental,
Traveluck, Double Wealth, Merit, Pempire, Forward, Pioneer,
Multi-Credit, Mandalay, and Horbury) were not engaged in any
63 A "foreign corporation" is a corporation that is not organ-
ized in the United States or under the law of the United States
or of any State. Sec. 7701(a)(4) and (5).
64 Income effectively connected with the conduct of a trade or
business within the United States that is included in the recip-
ient's gross income under sec. 882(a)(2) is not subject to
withholding. Secs. 1442(a), 1441(c).
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