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income of a foreign corporation engaged in the active conduct of
a banking, financing, or similar business. Sec. 1.864-
4(c)(5)(vi)(b), Income Tax Regs. Accordingly, we analyze LTD’s
MMA II interest pursuant to either the asset-use or business-
activities test. Id.
We have held, supra pp. 146-147, that LTD is “a dealer in
stocks or securities” within the meaning of section 1.864-
4(c)(3)(i), Income Tax Regs. Accordingly, LTD’s MMA II interest
is interest derived by a dealer of stocks or securities within
the meaning of section 1.864-4(c)(3)(i), Income Tax Regs.
Consequently, we apply the business-activities test to decide
whether such interest is effectively connected income.
Before applying the business-activities test, however, we
must address the exception for activities relating to the
management of investment portfolios provided in section 1.864-
4(c)(3)(i), Income Tax Regs. We have held, supra pp. 130-131,
that the investment portfolio management 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 MMA II interest 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.
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