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purchasing a certificate of deposit from a non-U.S. bank or
placing the funds in a non-U.S. term deposits, and maintaining
records of LTD’s and its clients’ positions with respect to such
investments or deposits. We conclude that such activities of
LTD’s trade or business were "a material factor in the
realization of the income" within the meaning of section
864(c)(2)(B). We have given due regard to the question of
whether such income was accounted for through such trade or
business, and we find LTD’s income from non-U.S. certificates of
deposit and term deposits to have been accounted for through
LTD’s trade or business. Sec. 864(c)(2). Consequently, we hold
that LTD’s income from non-U.S. certificates of deposit and term
deposits is effectively connected income pursuant to section
1.864-4(c)(5)(vi)(b), Income Tax Regs., and section 864(c)(2)(B).
(3) Pace Investments
Petitioners contend that the Pace investments income is
income from sources outside the United States. Petitioners
contend that the Pace investments income is not effectively
connected income because it is not one of the types of foreign
source income which is deemed effectively connected income
pursuant to section 864(c)(4)(B) or (C).
Respondent does not address the issue of whether the Pace
investment income is effectively connected.
We have held, supra p. 109, that the Pace investments income
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