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argues that petitioners have failed to prove that the interest
income is foreign source income.
We conclude that LTD’s portion of the interest income is
compensation for services. The non-U.S. investment program
consisted of purchases of certificates of deposit and term
deposits in banks outside the United States. LTD operated the
non-U.S. investment program in a manner similar to its U.S.
investment program. Accordingly, we apply our analysis of the
U.S. program, supra pp. 101-107, to the non-U.S. program and
conclude that the spread income was compensation for services.
We believe that the activities from which LTD earned its
interest spreads were services that were performed in San
Antonio. We conclude that the most important activity in
producing the interest spread income was the actual placing of
funds in the certificates of deposit or the term deposits. LTD’s
client clearing account, from which LTD placed clients’ funds in
certificates of deposit or term deposits, was located in Frost
Bank in San Antonio. Accordingly, we hold that the income from
non-U.S. certificates of deposit and term deposits is
characterized as compensation for personal services performed in
the United States and is treated as income from sources within
the United States. Sec. 861(a)(3).
(3) Pace Investments
Petitioners contend that the Pace investments were purchases
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