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of BCE Common Shares that receive New Nortel Common Shares. U.S.
Holders of BCE Common Shares are strongly urged to consult their
own tax and financial advisors”.
Finally, the Circular stated that
In the opinion of Davis Polk & Wardwell, U.S. counsel to
BCE, for U.S. federal income tax purposes a U.S. Holder of
BCE Common Shares will be treated as receiving a taxable
distribution of the New Nortel Common Shares as a result of
the Arrangement and be taxed at ordinary income rates on a
dividend in the amount of the fair market value, as of the
date of the distribution, of the New Nortel Common Shares
received, to the extent the distribution is out of the
earnings and profits (“E&P”) of BCE calculated under
applicable U.S. federal income tax principles. BCE expects
to have E&P adequate to render all or nearly all of the
distribution received by a U.S. Holder taxable as a
dividend.
Petitioner did not attempt to prove that BCE did not have
earnings and profits such that all or some of the distribution
was nontaxable. In fact, on July 6, 2004, this Court analyzed
the same BCE distribution of Nortel stock and held that the
retained earnings statement clearly reflected that BCE made the
Nortel stock distribution from BCE’s earnings and profits.
Koppel v. Commissioner, T.C. Memo. 2004-158.
We find that the distribution of Nortel stock was a
dividend. Thus, we conclude that, as such, the distribution of
Nortel stock was includable in petitioner’s gross income as a
taxable ordinary dividend. Accordingly, we sustain respondent’s
determination on this issue.
We next address the addition to tax under section 6651(a)(1)
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