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Income Tax Regs.24 The regulations, however, do not define
"carrying on the banking business". The Commissioner has applied
the section 581 definition of "bank" to interpret the phrase
"carrying on the banking business" for purposes of section
861(c). Rev. Rul. 83-176, 1983-2 C.B. 111, 112. Section 581
provides three requirements for an entity to be considered a
"bank" within the meaning of the statute. The first requirement
is that the entity must be "a bank or trust company incorporated
and doing business under the laws of the U.S. (including laws
relating to the District of Columbia) or of any State". Sec.
581. The second requirement is that a substantial part of the
entity's business must consist of "receiving deposits and making
loans and discounts, or of exercising fiduciary powers similar to
those permitted to national banks under the authority of the
Comptroller of the Currency." Id. The third requirement is that
the entity must be "subject by law to supervision and examination
by State * * * or Federal authority having supervision over
banking institutions." Id.
24
Sec. 1.861-2(b)(1), Income Tax Regs., provides that the
interest on the deposits with persons carrying on the banking
business must be "paid or credited before January 1, 1977, to a
nonresident alien individual or foreign corporation". However,
sec. 1041 of the Tax Reform Act of 1976, Pub. L. 94-455, 90 Stat.
1634, repealed the last sentence of sec. 861(c), which had read:
"Effective with respect to the amounts paid or credited after
December 31, 1976, subsection (a)(1)(A) and this subsection shall
cease to apply." Therefore, sec. 1.861-2(b)(1), Income Tax
Regs., applies to interest paid or credited to a nonresident
alien individual or foreign corporation after Dec. 31, 1976.
Rev. Rul. 83-176, 1983-2 C.B. 111, 112.
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