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loan interest to have been accounted for through LTD’s trade or
business. Sec. 864(c)(2). Accordingly, we conclude that LTD’s
loan interest, if it were U.S. source, would be effectively
connected income pursuant to section 1.864-4(c)(5)(vi)(b), Income
Tax Regs., and section 864(c)(2)(B). Consequently, we hold that
LTD’s loan interest is effectively connected income pursuant to
section 1.864-6(b)(2)(ii)(d)(2), Income Tax Regs., and section
864(c)(4)(B).
(2) MMA II
Petitioners contend that the MMA II interest is from sources
without the United States. Petitioners contend that such
interest is not effectively connected income because it is not
one of the types of foreign source income that is deemed
effectively connected income pursuant to section 864(c)(4)(B) or
(C).
Respondent contends that the MMA II interest from sources
without the United States. Respondent contends that such foreign
source interest is effectively connected income pursuant to
section 1.864-4(c)(5)(vi), Income Tax Regs.
We have held, supra p. 110, that the MMA II income is
characterized as interest income and is treated as income from
sources without the United States. We believe that respondent
incorrectly relies on section 1.864-4(c)(5)(vi), Income Tax
Regs., which addresses U.S. source income.
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