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to whether or not such asset or such income, gain, or loss was
accounted for through such trade or business." Sec. 864(c)(2).
The regulations provide that the business-activities test is of
primary significance in cases in which:
(a) dividends or interest are derived by a dealer in
stocks or securities, (b) gain or loss is derived from
the sale or exchange of capital assets in the active
conduct of a trade or business by an investment
company, (c) royalties are derived in the active
conduct of a business consisting of the licensing of
patents or similar intangible property, or (d) service
fees are derived in the active conduct of a servicing
business. * * * [Sec. 1.864-4(c)(3)(i), Income Tax
Regs.]
The regulations, however, add that
In applying the business-activities test, activities
relating to the management of investment portfolios
shall not be treated as activities of the trade or
business conducted in the United States unless the
maintenance of the investments constitutes the
principal activity of that trade or business. * * *
[Id.]
e. Section 864(c)(4)(B) Rules for Income
From Sources Without the United States
Once a taxpayer is determined to be engaged in the active
conduct of a banking, financing, or similar business within the
meaning of section 1.864-5(b)(2)(i), Income Tax Regs.,20 then all
dividends and interest from sources without the United States are
20
The test articulated in sec. 1.864-4(c)(5)(i), Income Tax
Regs., regarding whether a foreign corporation is engaged in the
active conduct of "a banking, financing, or similar business in
the United States" is to be applied. Sec. 1.864-5(b)(2)(i),
Income Tax Regs.
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