Inverworld, Inc., et al. - Page 91

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            investments program was LTD.  Respondent argues that numerous                                 
            factors support such contention:  The clients had no control over                             
            how or where the money was invested; the money of all the clients                             
            in all of the different LTD funds was pooled and invested in                                  
            LTD's name; LTD not only invested the pooled funds in                                         
            certificates of deposit but also used the pooled funds to make                                
            loans to its clients and others, to use in special operations,                                
            and to fund Inver Group's own investment projects; the rate of                                
            return credited to the clients' accounts did not reflect the rate                             
            of return earned by the investments because LTD received all of                               
            the interest and paid the clients interest at a previously set                                
            rate, retaining the benefit of the spread attributable to the                                 
            volume of the investments; LTD paid its clients interest,                                     
            regardless of whether or when LTD itself was paid; and LTD                                    
            credited interest to its clients, even though it had not yet                                  
            received the interest payment.                                                                
                  Respondent contends that LTD was engaged in trade or                                    
            business in the United States.  Accordingly, respondent argues                                
            that, pursuant to the source rules for interest, the interest                                 
            paid by LTD as obligor was U.S. source income to LTD’s clients.                               
            Consequently, respondent contends that LTD is required to                                     
            withhold tax on the interest it paid to its clients.  Respondent                              
            contends that LTD is not "carrying on the banking business" for                               
            purposes of the exemption for interest on deposits with persons                               
            carrying on the banking business.                                                             





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