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limitation income is not in and of itself inconsistent with the
payments’ being in the nature of dividends, suggesting that such
clarification “would prevent any misunderstanding of the relevant
authorities by the general public.”
Respondent points out that FIL appears to be a controlled
foreign corporation (CFC), as defined in section 957, and
therefore would be subject to the “look-thru” rules of section
904(d)(3). Pursuant to that section, dividends received by U.S.
shareholders of a CFC would typically be characterized pro rata
in accordance with the nature of the various types (if more than
one) of the underlying income of the CFC. See sec. 904(d)(3)(D);
see also sec. 1.904-5(c)(4), Income Tax Regs. Hence, dividends
from a CFC may in many cases properly be categorized as general
limitation income rather than as passive income.
Petitioners join in respondent’s motion and further urge the
Court to reconsider and hold (1) that petitioners are not
precluded from arguing substance over form with respect to the
special commissions, and (2) that petitioners have met their
burden of showing the payments to be dividends in substance.
(Petitioners do not dispute for purposes of this motion that the
payments made to the partnership were taxable as compensation for
services.) Petitioners argue that in light of the now-conceded
consistency of their Form 1116 reporting with their foreign
source dividends assertion, the “fact that the return preparer
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