Thomas Henry Koppel - Page 5

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          income.  If a corporation distributes property4 to its                      
          shareholders from the corporation’s accumulated earnings and                
          profits or its current earnings and profits for the taxable year,           
          the distribution constitutes a dividend.  Secs. 301(a), (c)(1),             
          316(a).  Section 301(b)(2) requires that the amount of the                  
          distribution be reduced, but not below zero, by (1) the amount of           
          any corporate liabilities the shareholder assumed in connection             
          with the distribution and (2) the amount of liabilities to which            
          the property is subject immediately before and after the                    
          distribution.                                                               
               As we understand his position, petitioner principally relies           
          on the following two arguments:5  (1) BCE lacked sufficient                 
          earnings and profits for the distribution to constitute a                   
          dividend;6 and (2) petitioner’s obligation to accept BCE when-              
          issued shares is a liability that reduces the amount of the                 


               4Sec. 317(a) defines “property” as “money, securities, and             
          any other property; except that such term does not include stock            
          in the corporation making the distribution (or rights to acquire            
          such stock).”                                                               
               5At trial, petitioner also argued that, when BCE distributed           
          the Nortel stock to him, he received an “investment in Canada”,             
          exempt from taxation under the North American Free Trade                    
          Agreement.  In response to questioning by this Court, however,              
          petitioner conceded that he was unaware of any provision of U.S.            
          tax law that would exempt from tax his investment in a Canadian             
          corporation.                                                                
               6Although petitioner did not include this argument in his              
          petition or the amendment to his petition, respondent agrees that           
          the issue is fairly before the Court.                                       





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