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address petitioners’ argument regarding INC because the proper
examination is with respect to LTD.
The loan interest is compensation for loans to LTD's clients
that LTD made in the active conduct of its trade or business in
the United States. Accordingly, the loan interest is "interest"
because it is "compensation for the use or forbearance of money."
Deputy v. DuPont, 308 U.S. 488, 498 (1940). 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 1.864-4(c)(5)(i), Income Tax Regs.
Consequently, we hold that LTD was "engaged in the active conduct
of a banking, financing, or similar business within the United
States" within the meaning of section 864(c)(4)(B)(ii).
Accordingly, the loan interest is interest that is "derived in
the active conduct of a banking, financing, or similar business
within the United States" within the meaning of section
864(c)(4)(B)(ii).
The loan interest is "interest from sources without the
United States" other than interest from stocks or securities and,
therefore, falls under the third category of foreign source
income of a foreign corporation engaged in the active conduct of
a banking, financing, or similar business within the United
States. Sec. 1.864-6(b)(2)(ii)(d)(2), Income Tax Regs.
Accordingly, in deciding whether such interest is effectively
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