Rev. Rul. 88-3

1988-1 C.B. 268, 1988-3 I.R.B. 9.

                       Internal Revenue Service

                                 Revenue Ruling

                TRADE OR BUSINESS WITHIN THE U.S.; DETERMINATION

                          Published: January 19, 1988

SECTION 864. - DEFINITIONS AND SPECIAL RULES, 26 CFR 1.864-2: Trade or business within the United States.

  Trade or business within the U.S.; determination. The determination whether a taxpayer is engaged in a trade or business within the U.S. is highly factual and such a determination is not ordinarily made in an advance ruling. Rev. Rul. 73-227 revoked.

  Rev. Rul. 73-227, 1973-1 C.B. 338, examines the activities of X, the foreign financing subsidiary of a United States parent, and holds that the United States source interest income that X earns is effectively connected with a United States trade or business under section 864(c) of the Internal Revenue Code of 1954.

  Section 864(b) of the Code and the regulations promulgated thereunder provide rules for determining whether a foreign taxpayer is engaged in a trade or business within the United States. (These rules may differ in some respects from those used in determining whether a taxpayer is engaged in a trade or business under other sections of the Code.) The determination whether X is engaged in a trade or business within the United States must therefore be made by applying these rules to the facts described in the ruling. Rev. Rul. 73-227, however, does not do so. The ruling simply concludes without discussion of the applicable statute and regulations that X is engaged in a trade or business within the United States. Because the ruling does not discuss and apply the proper legal standard, its conclusion may be unsound.

  In addition, the determination whether a taxpayer is engaged in a trade or business within the United States is highly factual.

Such a determination is not ordinarily made in an advance ruling. See sections 2.01 and 4.01(2) of Rev. Proc. 87-6, 1987-1 I.R.B. 45.

  Accordingly, Rev. Rul. 73-227 is revoked. Determinations under section 864 of the Code must be made by applying the regulations promulgated thereunder to the facts and circumstances of each case.

                        EFFECT ON OTHER REVENUE RULINGS

  Rev. Rul. 73-227 is revoked.

                              DRAFTING INFORMATION

  The principal author of this revenue ruling is Carol P. Tello, Office of the Associate Chief Counsel (International). For further information on the ruling, call Ms. Tello on (202) 634-5427 (not a toll-free call).

Rev. Rul. 88-3, 1988-1 C.B. 268, 1988-3 I.R.B. 9.