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DIVIDEND”. Petitioner did not include the Nortel stock
distribution in his gross income.
In a notice of deficiency dated December 9, 2002, respondent
determined that the full amount of the Nortel stock distribution
constituted a taxable ordinary dividend. Respondent also
determined that petitioner was liable for a section 6662(a)
accuracy-related penalty for substantial understatement of tax.
On January 29, 2003, petitioner filed a petition with this
Court contesting respondent’s determination. In his petition,
petitioner made the following allegation:
This stock distribution represents appreciated assets
of Canadian corporations. The intent and agreement of
NAFTA [the North American Free Trade Agreement] (Art.
1109.3) discourages the U.S. from taking earnings that
are part of Canadian corporations. The tax should be
taken when the stock is sold. Also, the tax code may
allow the payer to value the distribution based on the
net change in total market value. This would be needed
only in those rare cases when a corporation distributed
over half of its assets in a non-cash way.
Additionally, on August 12, 2003, petitioner filed an amendment
to petition, in which petitioner alleged that “a devaluation
required by the New York Stock Exchange for shares directly
related to the distribution * * * is a liability that may be
excluded from the distribution per the tax code.”
OPINION
I. Dividend Classification of the Nortel Stock Distribution
Section 61(a)(7) includes dividends in a taxpayer’s gross
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Last modified: May 25, 2011