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(2) All Commissions and Fees Excepting
the Foreign Source TVA Commissions
Petitioners contend that the commissions and fees are income
from sources without the United States. Petitioners contend that
the commissions and fees are not effectively connected income
because they do not fall under 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 commissions and fees are income
from sources within the United States. Respondent contends that
the commissions and fees are effectively connected income through
an implied application of the business-activities test.
We have held, supra pp. 112-118, that all of the commissions
and fees, excepting the two types of foreign source TVA
commissions, are characterized as personal services income and
are treated as income from sources within the United States.
Because petitioner's effectively connected income argument
presumes foreign source income, we find that argument to have no
merit. LTD’s commissions and fees (excepting the two types of
foreign source TVA commissions) are any "income, gain, or loss
from sources within the United States" not already described in
the first two categories of U.S. source income and, therefore,
fall under the third category of U.S. source 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),
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