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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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