- 5 -
income. If a corporation distributes property4 to its
shareholders from the corporation’s accumulated earnings and
profits or its current earnings and profits for the taxable year,
the distribution constitutes a dividend. Secs. 301(a), (c)(1),
316(a). Section 301(b)(2) requires that the amount of the
distribution be reduced, but not below zero, by (1) the amount of
any corporate liabilities the shareholder assumed in connection
with the distribution and (2) the amount of liabilities to which
the property is subject immediately before and after the
distribution.
As we understand his position, petitioner principally relies
on the following two arguments:5 (1) BCE lacked sufficient
earnings and profits for the distribution to constitute a
dividend;6 and (2) petitioner’s obligation to accept BCE when-
issued shares is a liability that reduces the amount of the
4Sec. 317(a) defines “property” as “money, securities, and
any other property; except that such term does not include stock
in the corporation making the distribution (or rights to acquire
such stock).”
5At trial, petitioner also argued that, when BCE distributed
the Nortel stock to him, he received an “investment in Canada”,
exempt from taxation under the North American Free Trade
Agreement. In response to questioning by this Court, however,
petitioner conceded that he was unaware of any provision of U.S.
tax law that would exempt from tax his investment in a Canadian
corporation.
6Although petitioner did not include this argument in his
petition or the amendment to his petition, respondent agrees that
the issue is fairly before the Court.
Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011