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of certificates of deposit issued by foreign branches of Mexican
banks and that the character of the Pace investments income is
therefore interest income. Petitioners contend that the Pace
investments income is from sources without the United States
because the obligors were foreign.
Respondent does not specifically address either the
character or the source of the Pace investments income.
Respondent merely argues that petitioners have failed to prove
that the income is from a foreign source.
Petitioners' contention that the Pace investments were
merely purchases of certificates of deposit issued by foreign
branches of Mexican banks is unsupported by the record. We
believe that the Pace investments constituted a specialized
mechanism for clients to draw upon their unused lines of credit.
The income that LTD earned from its Pace investments was the
excess of (1) the sum of the interest earned from the Mexican
banks and the fees earned from the clients, over (2) the interest
paid to the clients as their stated rate of return. We conclude
that such income represented compensation for services rendered
in San Antonio in arranging the Pace investments. Accordingly,
we hold that the Pace investments income 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).
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