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mutual funds. The reported amount of $23,245 included $1,624
(rounded) of the $7,118.80 distribution from Vanguard.
Petitioner contends that the $7,118.80 distribution
represents a $5,494 “return of capital” and $1,624 in “capital
gains”. The difference between the admitted capital gains and
the distribution is the amount in issue of $5,494 (rounded down).
Section 61(a) provides that gross income includes all income
from whatever source derived, unless excludable by a specific
provision of the Code. Section 61(a)(7) lists dividends as
includable in gross income. The definition of gross income in
the income tax law is inclusive on its face, and the concept of
inclusiveness is long established. Commissioner v. Glenshaw
Glass Co., 348 U.S. 426, 429-430 (1955). No specific Code
section excludes capital gain distributions from gross income.
The distribution at issue here is from a mutual fund
(regulated investment company). Sec. 851. Distributions of
capital gain dividends are defined in section 852(b)(3)(C). With
respect to distributions by mutual funds, section 852(b)(3)(B)
provides that “A capital gain dividend shall be treated by the
shareholders as a gain from the sale or exchange of a capital
asset held for more than 1 year.” Section 1222(3) states that
the term “long-term capital gain” means “gain from the sale or
exchange of a capital asset held for more than 1 year”. Net
long-term capital gains are subject to tax at the preferential
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Last modified: May 25, 2011