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4(c)(3)(i), Income Tax Regs. We have held, supra pp. 130-131,
that the investment management portfolio exception is
inapplicable and, consequently, 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 Pace investments income is effectively connected income, we
must consider whether "the activities of such trade or business
were a material factor in the realization of the income". Sec.
864(c)(2)(B). We have held, supra p. 98, that LTD was engaged in
"trade or business within the United States" during its taxable
years in issue. The activities of LTD’s trade or business
relating to the Pace investments income included raising funds
from clients, depositing such funds with Mexican banks, and
arranging for clients to draw upon their unused lines of credit.
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 Pace investments income to
have been accounted for through LTD's trade or business. Sec.
864(c)(2). Consequently, we hold that LTD's Pace investments
income is effectively connected income pursuant to section 1.864-
4(c)(5)(vi)(b), Income Tax Regs., and section 864(c)(2)(B).
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