- 135 -
"properly allocable". Instead, the regulation provides the
general guideline that if an office or other fixed place of
business is "a material factor in the realization for that year
of an item of income, gain, or loss * * * such item of income,
gain, or loss shall be considered to be allocable in its entirety
to that office or other fixed place of business." Sec. 1.864-
6(c)(1), Income Tax Regs.
Finally, any foreign source income initially deemed
effectively connected shall not be treated as effectively
connected if such income, assuming it were derived by the
taxpayer from sources within the United States for the taxable
year, "would not be treated under � 1.864-4 as effectively
connected for the taxable year with the conduct of a trade or
business in the United States." Sec. 1.864-5(a), Income Tax
Regs. In other words, foreign source income deemed effectively
connected pursuant to, inter alia, section 864(c)(4)(B) must also
meet the applicable effectively connected income tests of section
1.864-4, Income Tax Regs., i.e., the asset-use test, the
business-activities test, or the banking activity test, as if
such income were from sources within United States.
4. Application of the Effectively
Connected Income Rules
We have held, supra p. 98, that LTD was "engaged in the
active conduct of a banking, financing, or similar business in
the United States" within the meaning of section 1.864-
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