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c. Interest Income
(1) Loans
Petitioners do not address either the character or the
source of the income earned by LTD on its loans to clients and
Mexican corporations.
Respondent contends that the character of the income from
LTD's loans is interest income. Respondent argues that the
income is attributable to interest on loans made to LTD's clients
and Mexican corporations. Because the debtors resided without
the United States, respondent contends that the interest is
treated as income from sources without the United States.
We believe that LTD’s interest from loans was all paid by
Mexican individuals and corporations. Accordingly, we hold that
the interest is characterized as interest from non-U.S. obligors
and is treated as income from sources without the United States.
Sec. 862(a)(1).
(2) MMA II
Petitioners contend that LTD’s MMA II income was interest
earned on client funds placed in non-U.S. bank deposits, thus
constituting income from sources without the United States.
Respondent agrees that the MMA II income was interest.
Respondent, however, argues that petitioners have failed to prove
that the interest came from a foreign source.
We find that, in the MMA II program, clients placed funds
with LTD and earned interest on such funds. Mexican corporations
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