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The branch tax law conceptually encompasses income which
could be characterized either as ordinary or capital in nature,
and both capital and ordinary assets may produce ECI. Thus, the
Ginter and Gomes properties, even if held as capital assets,
could generate ECI.
For the Ginter and Gomes properties to generate ECI under
section 864(c)(2) or (3), petitioner must be engaged in a trade
or business within the United States. Petitioner contends that
with respect to the Ginter and Gomes properties, it was not
engaged in a trade or business in the United States. Petitioner
relies on Neill v. Commissioner, 46 B.T.A. 197 (1942), where it
was held that, without more, the mere ownership of U.S. real
property, "quiescent" receipt of income therefrom, and customary
acts incidental to ownership is not the carrying on of a U.S.
trade or business. Conversely, where a taxpayer buys and sells
real property, collects rents, pays operating expenses, taxes,
and mortgage interest, makes alterations and repairs, employs
labor, purchases materials, and makes contracts over a period of
years, there is obvious evidence of a U.S. trade or business.
Pinchot v. Commissioner, 113 F.2d 718 (2d Cir. 1940); see also De
Amodio v. Commissioner, 34 T.C. 894 (1960) (active management of
rental property on a "regular and continuous" basis is a U.S.
trade or business), affd. 229 F.2d 623 (3d Cir. 1962); Herbert v.
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