- 161 -
864(c)(2)(B). We have held, supra p. 98, that LTD was engaged in
"trade or business within the United States" pursuant to section
864(b) during the taxable years in issue. The activities of
LTD’s trade or business relating to the MMA II interest included
receiving clients’ funds, lending such funds to other clients,
collecting the interest and principal from the loans, and
maintaining records of LTD’s and the clients’ positions with
respect to the loans. 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
MMA II interest to have been accounted for through LTD's trade or
business. Sec. 864(c)(2). Accordingly, we conclude that LTD's
MMA II 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 MMA II 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).
d. Currency Exchange Transactions
Income (Currency Swaps
and Currency Transactions)
Petitioners contend that the currency exchange transactions
income is from sources without the United States. Petitioners
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