- 17 -
(We shall refer collectively to the above-described actions 1
through 5 as the disputed transaction and individually as steps
1, 2, 3, 4, or 5 as the case may be.)
On March 15, 1994, petitioner filed Form 1120, U.S. Corpora-
tion Income Tax Return, for its taxable year ended June 30, 1993
(petitioner’s 1993 return), with the Internal Revenue Service
Center in Austin, Texas. In that return, petitioner reported
dividends received of $52,486,578, of which $20 million was the
dividend that petitioner reported it received from ITC, and
foreign dividend gross-up under section 78 of $18,295,867.12
Petitioner claimed total tax (1) before foreign tax credits of
$18,696,569 and (2) after foreign tax credits of $1,146,387.13
Schedule C, Dividends and Special Deductions (petitioner’s 1993
Schedule C), of petitioner’s 1993 return reported a dividend of
$20 million and a foreign dividend gross-up under section 78 of
$18,236,696. In Schedule J, Tax Computation, of petitioner’s
1993 return, petitioner claimed foreign tax credits of
$18,540,543, of which $18,236,696 was attributable to the $20
million dividend that petitioner reported it received from ITC in
12The foreign dividend gross-up under sec. 78 of $18,295,867
claimed in petitioner’s 1993 return included foreign dividend
gross-up under sec. 78 of $18,236,696 attributable to the claimed
dividend from ITC and $59,170 attributable to petitioner’s
Belgium subsidiary.
13The total tax before and after foreign tax credits also
reflected an alternative minimum tax of $927,944 and an environ-
mental tax of $62,417.
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