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IRS Concludes That U.S. Lending Activities Conducted Through a Dependent or Independent "Agent" Constitute a U.S. Trade or Business |
September 30, 2009
Previously published on September 24, 2009
On September 22, 2009, in its first written guidance on the topic, the IRS Chief Counsel's Office issued a memorandum to the IRS's Manhattan Financial Services Office in which the Associate Chief Counsel (International) concluded that interest income from loans made by a foreign lender to a U.S. borrower was effectively connected with a U.S. trade or business where the lender operated through an independent contractor with agent-like powers. In concluding that the interest income at issue was "effectively connected income," the IRS applied the special rules for a banking or financing business under Treas. Reg. ยง 1.864-4(c)(5). It is clear from the Chief Counsel memorandum that the IRS intends to pursue this and similar issues further, as it specifically encouraged the Manhattan Financial Services Office to develop other effectively connected income cases and assured that office that the Associate Chief Counsel (International) "stands ready" to assist in the related legal analysis.
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