Tony, a nonresident alien, owns and breeds race horses. Tony enters his star horse in the Kentucky Derby, the Preakness Stakes and the Belmont Stakes, where he wins some purses. While in the United States, Tony buys and sells 100 shares of Proctor & Gamble stock for a tidy profit. Assuming Tony’s horse racing activities constitute the conduct of a U.S. trade or business, his effectively connected income consists of:
1. only the gain on the sale of stock.
2. only the winnings from the horse races.
3. both the gain on the sale of stock and the winnings from the horse races.
4. neither the gain on the sale of stock nor the winnings from the horse races.