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meaning of section 1.864-4(c)(3)(i), Income Tax Regs. Although
regulations do not define "principal activity" for the purposes
of section 1.864-4(c)(3)(i), Income Tax Regs., in interpreting
such words, we look to their "ordinary, everyday senses."
Soliman v. Commissioner, 506 U.S. 168, 174 (1993), and the cases
cited therein. The term "principal" has been defined to mean
"most important, consequential, or influential." Id. at 174
(quoting Webster’s Third New International Dictionary 1802 (1971)
and defining "principal place of business" for purposes of the
home office deduction pursuant to section 280A(c)(1)).
In the instant case, the "maintenance" of investments, which
is equated in section 1.864-4(c)(3)(i), Income Tax Regs., to the
"management" of investments, constitutes the "most important,
consequential, or influential" activity of LTD's trade or
business as seen by both its total activities and total income.
Accordingly, we conclude that the "maintenance" of investments
constitutes the principal activity of LTD's trade or business
within the meaning of section 1.864-4(c)(3)(i), Income Tax Regs.
Consequently, we hold that LTD’s activities relating to the
management of investment portfolios shall be treated as
activities of LTD’s trade or business conducted in the United
States for purposes of applying the business-activities test.
In applying the business-activities test to decide whether
the management fee is effectively connected income, we must
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