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retained earnings for 2000 (retained earnings statement), at the
end of 2000, BCE had retained earnings in the amount of
approximately $1.5 million.
During May 2000, petitioner held BCE stock in his Charles
Schwab & Co., Inc. account No. 51933001 (Charles Schwab account).
On May 9, 2000, pursuant to the spinoff transaction, petitioner
received from BCE 471 shares of Nortel stock. According to the
Form 1099-DIV, Dividends and Distributions, issued for the
Charles Schwab account for 2000, the value of the Nortel stock
that petitioner received was $27,641.81.
On Schedule B, Interest and Ordinary Dividends, of
petitioner’s 2000 Form 1040, U.S. Individual Income Tax Return,
petitioner reported total ordinary dividends from the Charles
Schwab account in the amount of $34,101.49. Petitioner then
subtracted the full amount of the Nortel stock distribution and
made the following notation: “LESS SPINOFF REPORTED AS ORDINARY
DIVIDEND (SEE EXHIBIT 1)”. The attached “Exhibit 1” was a copy
of petitioner’s Charles Schwab account statement for May 1-31,
2000, which indicated petitioner’s receipt of the Nortel stock on
May 9, 2000. On the statement, petitioner had drawn an arrow to
the Nortel stock transaction and written “NOT AN ORDINARY
3(...continued)
sec. 355. Our use of the term “spinoff” does not mean the
transaction qualified for nonrecognition treatment under sec.
355(a)(1).
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