- 140 -
items are not effectively connected income because they do not
fall under one of the types of foreign source income which is
deemed effectively connected income pursuant to section
864(c)(4)(B) or (C). Alternatively, petitioners contend that
such items, if treated as income from sources within the United
States, cannot be effectively connected income because (1) they
fail the asset-use test as they were not derived by LTD from
assets used in the conduct of trade or business in the United
States, and (2) they fail the business-activities test as the
activities of any alleged U.S. trade or business of LTD were not
a material factor in the realization of the amounts of interest
income properly allocable to LTD.
Respondent contends alternatively that the income from the
U.S. certificates of deposit and bank deposits is interest income
or personal services income from sources within the United
States. Respondent contends that such income items are
effectively connected because they pass the business-activities
test. Respondent argues that, as the activities of LTD's U.S.
business were a material factor in the realization of the
interest items, such items are effectively connected income.
Additionally, respondent argues that, if the income from U.S.
certificates of deposit and bank deposits is determined not to be
effectively connected income, a tax of 30 percent is imposed
pursuant to section 881.
Page: Previous 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 NextLast modified: May 25, 2011