                                                 OSVALDO AND ANA M. RODRIGUEZ, PETITIONERS v.
                                                     COMMISSIONER OF INTERNAL REVENUE,
                                                                RESPONDENT
                                                        Docket No. 13909–08.                  Filed December 7, 2011.

                                                  Ps, citizens of Mexico and permanent residents of the
                                                United States, were the sole shareholders of E, a controlled
                                                foreign corporation. Pursuant to secs. 951(a)(1)(B) and 956,
                                                I.R.C., they included in their gross income amounts of E’s
                                                earnings that were invested in U.S. property. Ps characterized
                                                these inclusions as qualified dividend income subject to pref-
                                                erential income tax rates under sec. 1(h)(11), I.R.C. R re-
                                                characterized these amounts as ordinary income subject to

                                      174




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                                      (174)                        RODRIGUEZ v. COMMISSIONER                                         175


                                                nonpreferential income tax rates. Held: Inclusions in gross
                                                income as required under secs. 951(a)(1)(B) and 956, I.R.C., do
                                                not constitute qualified dividend income under sec. 1(h)(11),
                                                I.R.C.

                                           Patrick R. Gordon and Juan H. Gil II, for petitioners.
                                           Roberta L. Shumway, for respondent.
                                                                                  OPINION

                                        THORNTON, Judge: Respondent determined deficiencies of
                                      $316,950 and $295,530 in petitioners’ Federal income taxes
                                      for taxable years 2003 and 2004, respectively. The issue for
                                      decision is whether amounts included in petitioners’ gross
                                      income pursuant to sections 951(a)(1)(B) and 956 1 with
                                      respect to their controlled foreign corporation’s investments
                                      in U.S. property (for brevity, section 951 inclusions) con-
                                      stitute qualified dividend income under section 1(h)(11).

                                                                                Background
                                        The parties submitted this case fully stipulated pursuant
                                      to Rule 122. When they petitioned the Court, petitioners
                                      resided in Texas.
                                        At all relevant times petitioners were citizens of Mexico
                                      and permanent residents of the United States. Together they
                                      owned 100 percent of the stock of Editora Paso del Norte,
                                      S.A. de C.V. (Editora). 2 Editora had been incorporated in
                                      1976 under the laws of Mexico. In 2001 it had established
                                      operations in the United States as a branch under the name
                                      Editora Paso del Norte, S.A. de C.V., Inc.
                                        Originally, Editora’s primary business was publishing
                                      newspapers and selling newspaper advertising in Mexico. By
                                      the end of 2002 Editora had converted its primary business
                                      to developing, constructing, managing, and leasing commer-
                                      cial real estate and printing presses in Mexico and the
                                      United States. Editora also derived interest income from
                                      loans and royalty income from licensing intellectual property.
                                      During the years at issue Editora held significant invest-
                                      ments of real and tangible personal property in the United
                                      States.
                                        1 All section references are to the Internal Revenue Code (Code) in effect for the years in issue,

                                      and all Rule references are to the Tax Court Rules of Practice and Procedure.
                                        2 Petitioner husband owned 90 percent of Editora’s stock, and petitioner wife owned the other

                                      10 percent.




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                                      176                 137 UNITED STATES TAX COURT REPORTS                                        (174)


                                         On their amended 2003 and original 2004 Federal income
                                      tax returns, which they filed October 15, 2005, petitioners
                                      included in gross income $1,585,527 and $1,478,202, respec-
                                      tively, representing amounts of Editora’s earnings invested
                                      in U.S. property and taxable directly to petitioners pursuant
                                      to sections 951(a)(1)(B) and 956. Petitioners treated the sec-
                                      tion 951 inclusions as qualified dividend income subject to
                                      preferential income tax rates under section 1(h)(11)(B). In
                                      the notice of deficiency respondent determined that the sec-
                                      tion 951 inclusions are taxable at ordinary income tax rates.

                                                                                 Discussion
                                        As enacted in the Jobs and Growth Tax Relief Reconcili-
                                      ation Act of 2003, Pub. L. 108–27, sec. 302, 117 Stat. 760,
                                      section 1(h)(11) provides preferential tax rates for ‘‘qualified
                                      dividend income’’. Qualified dividend income includes divi-
                                      dends received from a qualified foreign corporation. Sec.
                                      1(h)(11)(B)(i)(II). The parties agree that during the years at
                                      issue Editora was a qualified foreign corporation within the
                                      meaning of the statute.
                                        Section 951, enacted by the Revenue Act of 1962, Pub. L.
                                      87–834, sec. 12(a), 76 Stat. 1006 (the 1962 legislation), is
                                      part of subpart F of part III, subchapter N, chapter 1 of the
                                      Code. Through subpart F (sections 951 through 964), Con-
                                      gress sought to limit tax deferrals by any foreign corporation
                                      that meets the definition of a ‘‘controlled foreign corporation’’
                                      (CFC), as provided in section 957(a). Elec. Arts, Inc. v.
                                      Commissioner, 118 T.C. 226, 272 (2002). Under section 951,
                                      subject to various restrictions and qualifications, U.S. share-
                                      holders of a CFC are taxed directly on the CFC’s earnings that
                                      are invested in certain types of assets in the United States. 3
                                      Secs. 951(a)(1)(B), 956(a). The parties agree that during the
                                      years at issue Editora was a controlled foreign corporation as
                                      defined in section 957(a) and that petitioners were U.S.
                                        3 More specifically, the sec. 951 inclusion represents the U.S. shareholder’s pro rata share of

                                      the CFC’s earnings invested in U.S. property holdings. The sec. 951 inclusion is the U.S. share-
                                      holder’s pro rata share of the lesser of two amounts: (1) The excess of (a) the average amounts
                                      of the CFC’s investments in U.S. property as of the end of each quarter of the taxable year over
                                      (b) the CFC’s earnings and profits representing previous sec. 951 inclusions; or (2) the amount
                                      of the CFC’s ‘‘applicable earnings’’, as defined in sec. 956(b)(1), representing essentially the
                                      CFC’s current and accumulated earnings and profits that have not already been included in its
                                      U.S. shareholders’ gross incomes. See Bittker & Lokken, Federal Taxation of Income, Estates
                                      and Gifts, par. 69.11.1, at 69–72 through 69–74 (rev. 3d ed. 2005).




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                                      (174)                        RODRIGUEZ v. COMMISSIONER                                         177


                                      shareholders with respect to Editora. They also agree as to
                                      the amounts of petitioners’ section 951 inclusions. They dis-
                                      agree as to whether the section 951 inclusions constitute
                                      qualified dividend income. The answer turns on whether a
                                      section 951 inclusion is properly characterized as a dividend.
                                         Section 316(a) defines ‘‘dividend’’ for purposes of subtitle A
                                      of the Code (which includes section 1) to mean ‘‘any distribu-
                                      tion of property made by a corporation to its shareholders’’
                                      out of the corporation’s current or accumulated earnings and
                                      profits. A dividend may be formally declared or it may be
                                      constructive, involving the shareholder’s informal receipt of
                                      corporate property. See Boulware v. United States, 552 U.S.
                                      421, 429–430 (2008); Truesdell v. Commissioner, 89 T.C.
                                      1280, 1295 (1987). But in either event there must be, in the
                                      first instance, a ‘‘distribution’’ by the corporation. See
                                      Boulware v. United States, supra at 437 n.12.
                                         A ‘‘distribution’’ entails a ‘‘change in the form of * * *
                                      ownership’’ of corporate property, ‘‘separating what a share-
                                      holder owns qua shareholder from what he owns as an indi-
                                      vidual.’’ Commissioner v. Gordon, 391 U.S. 83, 90 n.5 (1968).
                                      As the Supreme Court noted:
                                         Any common shareholder in some sense ‘‘owns’’ a fraction of the assets
                                      of the corporation in which he holds stock, including those assets that
                                      reflect accumulated corporate earnings. Earnings are not taxed to the
                                      shareholder when they accrue to the corporation, but instead when they
                                      are passed to shareholders individually through dividends. * * * The ques-
                                      tion is not whether a shareholder ends up with ‘‘more’’ but whether the
                                      change in the form of his ownership represents a transfer to him, by the
                                      corporation, of assets reflecting its accumulated earnings and profits. [Id.]

                                         A section 951 inclusion involves no change in ownership of
                                      corporate property. It arises not from any distribution of
                                      property by a CFC but from its investment in ‘‘United States
                                      property held (directly or indirectly) by the controlled foreign
                                      corporation’’. Sec. 956(a)(1)(A). Because there is no distribu-
                                      tion, there is no dividend within the meaning of section
                                      316(a), unless some special rule or qualification applies. The
                                      Code and the regulations contain no special rule or qualifica-
                                      tion to treat a section 951 inclusion as a dividend for pur-
                                      poses of section 1(h)(11).
                                         In limited instances—not involving characterization as
                                      qualified dividend income under section 1(h)(11)—in which
                                      Congress has intended section 951 inclusions to be treated as




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                                      178                 137 UNITED STATES TAX COURT REPORTS                                        (174)


                                      dividends, it has made express provision. See, e.g., sec.
                                      851(b) (providing that for purposes of the qualification rules
                                      for regulated investment companies, section 951 inclusions
                                      are ‘‘treated as dividends’’ to the extent that under section
                                      959(a)(1) there is a distribution out of earnings and profits
                                      of the taxable year which are attributable to the amounts so
                                      included); sec. 904(d)(3)(G) (providing that for purposes of
                                      applying limitation rules with respect to foreign tax credits,
                                      the term ‘‘dividend’’ includes amounts included in income
                                      pursuant to section 951(a)(1)(B)); sec. 960(a)(1) (providing
                                      that for purposes of rules applicable to indirect foreign tax
                                      credits under section 902, section 951 inclusions shall be
                                      treated ‘‘as if the amount so included were a dividend paid’’).
                                      To disregard this careful legislative design and treat section
                                      951 inclusions as dividends in the absence of express provi-
                                      sion would tend to render these provisions superfluous or
                                      unnecessary, contrary to well-established tenets of statutory
                                      construction. See, e.g., Weinberger v. Hynson, Westcott &
                                      Dunning, Inc., 412 U.S. 609, 633–634 (1973). This consider-
                                      ation reinforces our conclusion that section 951 inclusions are
                                      not to be treated as dividends absent express provision in the
                                      Code or the regulations.
                                         Unlike section 951, various other Code sections expressly
                                      characterize certain types of items as distributions or divi-
                                      dends. See, e.g., sec. 54A(g) (as enacted in 2008, providing
                                      that allocation to S corporation shareholders of a tax credit
                                      with respect to certain bonds ‘‘shall be treated as a distribu-
                                      tion’’); secs. 302(a), 304(a), 305(c) (all providing identically
                                      that certain redemptions ‘‘shall be treated as a distribution’’);
                                      sec. 551(b) (providing that certain undistributed foreign per-
                                      sonal holding company income is included in the share-
                                      holder’s gross income ‘‘as a dividend’’). 4 Of particular note,
                                      the same 1962 legislation that enacted section 951, which
                                      does not provide for dividend treatment, also enacted section
                                      1248, which provides that in certain circumstances gain from
                                      disposition of CFC stock ‘‘shall be included in the gross
                                      income of such person as a dividend, to the extent of the
                                      earnings and profits of the foreign corporation’’. Sec. 1248(a).
                                      The absence, in the same legislation, of any corresponding
                                        4 Sec. 551 was repealed by the American Jobs Creation Act of 2004 (AJCA 2004), Pub. L. 108–

                                      357, sec. 413(a)(1), 118 Stat. 1506.




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                                      (174)                        RODRIGUEZ v. COMMISSIONER                                         179


                                      provision for section 951 inclusions seems purposeful. Con-
                                      sistent with this legislative scheme, the regulations carefully
                                      distinguish ‘‘deemed dividends’’ under sections 551 and 1248
                                      from ‘‘deemed inclusions’’ under section 951(a). Sec. 1.902–
                                      1(a)(11), Income Tax Regs. (providing that for purposes of the
                                      deemed paid foreign tax credit under section 902, the term
                                      ‘‘dividends’’ does not include deemed inclusions under section
                                      951(a)).
                                         In support of their position that section 951 inclusions
                                      should be characterized as dividends, petitioners cite this
                                      statement from a Senate report that accompanied the 1962
                                      legislation that enacted subpart F: ‘‘Generally, earnings
                                      brought back to the United States are taxed to the share-
                                      holders on the grounds that this is substantially the equiva-
                                      lent of a dividend being paid to them.’’ S. Rept. 1881, 87th
                                      Cong., 2d Sess. (1962), 1962–3 C.B. 707, 794. This Court has
                                      sometimes cited this legislative history as evidencing the
                                      general purpose of the 1962 legislation. For instance, in Lim-
                                      ited, Inc. & Consol. Subs. v. Commissioner, 113 T.C. 169, 185
                                      (1999), revd. 286 F.3d 324 (6th Cir. 2002), this Court
                                      observed that a ‘‘dividend equivalency’’ rationale underlies
                                      the 1962 legislation. And in Gulf Oil Corp. v. Commissioner,
                                      87 T.C. 548, 571 (1986), affd. in part, revd. in part and
                                      remanded 914 F.2d 396 (3d Cir. 1990), this Court observed
                                      that under the 1962 legislation ‘‘Subpart F treats the amount
                                      of the increased investment much like a constructive divi-
                                      dend to the U.S. shareholders.’’ 5 But to say that section 951
                                         5 In Gulf Oil Corp. v. Commissioner, 87 T.C. 548 (1986), this Court held that increases in

                                      intercompany payables on the books of a U.S. corporate shareholder represented earnings of its
                                      foreign controlled subsidiaries, resulting in deemed inclusions in the U.S. shareholder’s income
                                      under secs. 951 and 956. In an introductory paragraph the Opinion framed the issue as being
                                      whether the uncollected balances in the payables account ‘‘constitute investment in U.S. prop-
                                      erty within the meaning of section 956, resulting in dividend income to petitioner’’. Id. at 550
                                      (fn. ref. omitted). And the headnote to Gulf Oil states that the increases to the payable balances
                                      ‘‘represent earnings of a controlled foreign corporation invested in U.S. property at the close of
                                      the taxable year 1974 and dividend income to P.’’ Id. at 549. The body of the Opinion, however,
                                      does not expressly address whether the deemed inclusions under secs. 951 and 956 should be
                                      considered to constitute dividend income, nor was any such conclusion essential to the decision
                                      upholding the Commissioner’s determination that the taxpayer was required to recognize
                                      deemed inclusions under secs. 951 and 956. See id. at 563. Notably, however, the Court observed
                                      that the taxpayer had ‘‘complete and indefinite control over’’ its foreign controlled subsidiaries’
                                      earnings that were reflected in the payables on the taxpayer’s own books, id. at 574, possibly
                                      suggesting that the Court viewed these earnings as constituting constructive dividends for rea-
                                      sons apart from the operation of secs. 951 and 956. In any event, Gulf Oil was decided under
                                      the pre-1993 version of sec. 956(a), which, as discussed infra, differed materially from the
                                      version of sec. 956(a) in effect for the years at issue. In these circumstances we do not view
                                                                                                     Continued




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                                      180                 137 UNITED STATES TAX COURT REPORTS                                        (174)


                                      treats a CFC’s investments in U.S. property ‘‘much like’’ a
                                      constructive dividend is a far cry from saying that such
                                      amounts actually constitute dividends. In fact, the statutory
                                      structure and operating rules in the Code, particularly as
                                      they have evolved over time, strongly suggest that these
                                      amounts do not constitute dividends under the Code.
                                         The formula for determining a CFC’s investment of
                                      earnings in U.S. property, for purposes of a section 951 inclu-
                                      sion, is found in section 956(a). As originally enacted in 1962,
                                      section 956(a)(1) provided that the section 951 inclusion was
                                      to be made by reference to the amount of U.S. property that
                                      the CFC held at the end of the taxable year to the extent this
                                      amount ‘‘would have constituted a dividend * * * if it had
                                      been distributed.’’ The clear import of this language is that
                                      because this amount has not been distributed, it does not in
                                      fact constitute a dividend.
                                         In 1993 Congress eliminated the just-quoted provision
                                      (‘‘would have constituted a dividend’’ etc.) as part of an
                                      amendment modifying the operation of section 956. Omnibus
                                      Budget Reconciliation Act of 1993, Pub. L. 103–66, sec.
                                      13232(a)(1) and (2), 107 Stat. 501 (the 1993 legislation). The
                                      legislative history indicates that the purpose of this 1993
                                      amendment was to conform the operating rules for section
                                      956 to the operating rules in new section 956A, enacted by
                                      the same legislation. Subject to certain qualifications, section
                                      956A required U.S. shareholders to include in income a pro
                                      rata share of a CFC’s earnings invested in ‘‘excess passive
                                      assets’’, defined generally as assets that the CFC holds for the
                                      production of passive income. See H. Rept. 103–111, at 691–
                                      695 (1993), 1993–3 C.B. 167, 267–271. The legislative history
                                      indicates that the purpose of section 956A was to curb CFCs’
                                      deferrals of U.S. taxation. 6 The 1993 legislation conformed
                                      the section 956(a) operating rules to section 956A because
                                      the provisions are ‘‘in some ways, conceptually parallel’’. Id.
                                      at 692, 1993–3 C.B. at 268. There is no mention in the 1993
                                      legislative history of any dividend equivalency rationale with
                                      Gulf Oil as establishing any rule for determining the issue before us.
                                        6 The stated reason for enacting sec. 956A was to ‘‘impose on controlled foreign corporations

                                      a new type of limitation on accumulating deferred earnings’’ because ‘‘deferral of U.S. tax on
                                      accumulated active business profits is not necessary to maintain the competitiveness of business
                                      activities conducted by controlled foreign corporations where such accumulated profits are held
                                      in the form of excessive accumulations of passive assets.’’ H. Rept. 103–111, at 691–692 (1993),
                                      1993–3 C.B. 167, 267–268.




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                                      (174)                        RODRIGUEZ v. COMMISSIONER                                         181


                                      respect to either amended section 956(a) or new section
                                      956A. 7
                                         Further evidencing the distinction between dividends and
                                      section 951 inclusions, the Code subjects them to different
                                      operating rules. For instance, whereas dividend distributions
                                      reduce the earnings and profits of the distributing corpora-
                                      tion, see sec. 316(a), section 951 inclusions do not—the undis-
                                      tributed earnings remain with the CFC, see sec. 956(a)(2),
                                      (b)(1); sec. 1.952–1(c)(1), Income Tax Regs. 8 As another
                                      example, whereas a dividend results in no increase to the
                                      shareholder’s stock basis, a section 951 inclusion does. 9 Sec.
                                      961(a); sec. 1.961–1, Income Tax Regs.
                                         In the light of these various considerations, the sentence in
                                      question from the 1962 legislative history does not control
                                      the issue of whether section 951 inclusions should be
                                      characterized as dividends for purposes of section 1(h)(11).
                                      The Code gives no hint that a section 951 inclusion, which
                                      as we have seen does not represent a ‘‘distribution’’, should
                                      be treated as a ‘‘dividend’’ within the meaning of section
                                      1(h)(11).
                                         According to its legislative history, section 1(h)(11) was
                                      intended in part to remove a perceived disincentive for cor-
                                      porations to pay out earnings as dividends instead of
                                      retaining and reinvesting them. 10 Because income inclusions
                                      under section 951(a)(1)(B) represent earnings that CFCs have
                                      retained and reinvested in U.S. property instead of paying
                                      them out as dividends, characterizing these amounts as
                                        7 Sec. 956A was repealed in 1996, leaving intact the revised structure and operating rules of

                                      sec. 956(a) as in effect for the years at issue.
                                        8 When the CFC eventually distributes the amounts previously included in the U.S. share-

                                      holder’s gross income pursuant to sec. 951, the distribution then reduces the CFC’s earnings and
                                      profits. See sec. 959(d). To avoid double taxation to the shareholder, the actual distribution is
                                      excluded from the shareholder’s gross income. See sec. 959(a).
                                        9 This increase in the U.S. shareholder’s stock basis is counteracted if and when the CFC

                                      eventually distributes to the shareholder the amounts represented by the sec. 951 inclusions.
                                      See sec. 961(b)(1); sec. 1.961–2, Income Tax Regs.
                                        10 The legislative history states in part:


                                      In addition, the Committee finds that present law, by taxing dividend income at a higher rate
                                      than income from capital gains, encourages corporations to retain earnings rather than to dis-
                                      tribute them as taxable dividends. If dividends are discouraged, shareholders may prefer that
                                      corporate management retain and reinvest earnings rather than pay out dividends, even if the
                                      shareholder might have an alternative use for the funds that could offer a higher rate of return
                                      than that earned on the retained earnings. This is another source of inefficiency as the oppor-
                                      tunity to earn higher pre-tax returns is bypassed in favor of lower pre-tax returns. [H. Rept.
                                      108–94, at 31 (2003), 2003–3 C.B. 35, 65.]




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                                      182                 137 UNITED STATES TAX COURT REPORTS                                        (174)


                                      qualified dividend income would not appear to further the
                                      stated legislative purpose.
                                         Further evidencing an absence of legislative purpose to
                                      treat section 951 inclusions as qualified dividend income, cer-
                                      tain technical rules of section 1(h)(11) are a poor fit for sec-
                                      tion 951 inclusions. For instance, section 1(h)(11)(B)(iii), in
                                      coordination with section 246(c), imposes upon the taxpayer
                                      a holding period requirement with respect to the stock on
                                      which dividends are paid. This holding period is based on the
                                      shareholder’s ex-dividend date. See sec. 246(c)(1). Because a
                                      section 951 inclusion implicates no declaration or payment of
                                      a dividend, there is no ex-dividend date by which to measure
                                      the holding period.
                                         As enacted in 2003, section 1(h)(11)(C) expressly excluded
                                      from the definition of ‘‘qualified foreign corporation’’ foreign
                                      personal holding companies (as defined in former section
                                      552(a)) (FPHCs), foreign investment companies (as defined in
                                      former section 1246(b)) (FICs), and passive foreign investment
                                      companies (as defined in section 1297(a)) (PFICs). 11 Peti-
                                      tioners suggest that because section 1(h)(11) does not simi-
                                      larly exclude section 951 inclusions, it must treat them as
                                      qualified dividend income. This reasoning is fallacious. That
                                      the statute excludes certain types of corporations (not
                                      including Editora) from the definition of qualified foreign cor-
                                      poration has little bearing on the question of whether section
                                      951 inclusions relating to a corporation (such as Editora)
                                      that is a qualified foreign corporation should be characterized
                                      as qualified dividend income.
                                         In Notice 2004–70, 2004–2 C.B. 724, 726, the Internal Rev-
                                      enue Service (IRS) provided guidance that section 951 inclu-
                                      sions do not constitute qualified dividend income under sec-
                                      tion 1(h)(11). 12 For the reasons previously discussed, we
                                      agree with this conclusion.
                                         Petitioners argue that section 951 inclusions should be
                                      treated as dividends because the 2004 instructions to Form
                                      5471, Information Return of U.S. Persons With Respect To
                                         11 Secs. 552 and 1246 were repealed as part of AJCA 2004 sec. 413(a). When Congress re-

                                      pealed the FPHC regime in 2004, it also amended sec. 1(h)(11)(C)(iii) by eliminating the ref-
                                      erence to FPHCs and FICs. See AJCA 2004 sec. 413(c)(1)(B), 118 Stat. 1507.
                                         12 In its postenactment general explanation of sec. 1(h)(11), the Joint Committee on Taxation

                                      cited Notice 2004–70, 2004–2 C.B. 724, with apparent approval. Staff of the Joint Comm. on
                                      Taxation, General Explanation of Tax Legislation Enacted in the 108th Congress, at 25 n.44
                                      (J. Comm. Print 2005).




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                                      (174)                        RODRIGUEZ v. COMMISSIONER                                         183


                                      Certain Foreign Corporations, indicate that individual CFC
                                      shareholders should report section 951 inclusions as ordinary
                                      dividend income. On brief respondent acknowledges that the
                                      2004 instructions are ‘‘ambiguous’’, pointing out that
                                      the 2004 instructions also instruct corporate taxpayers to
                                      report section 951 inclusions not as dividends but as ‘‘other
                                      income’’. 13 But whatever ambiguity or inaccuracy might be
                                      found in the 2004 instructions, it cannot affect the operation
                                      of the tax statutes or petitioners’ obligations thereunder. See
                                      Weiss v. Commissioner, 129 T.C. 175, 177 (2007). ‘‘It is set-
                                      tled law that taxpayers cannot rely on Internal Revenue
                                      Service instructions to justify a reporting position otherwise
                                      inconsistent with controlling statutory provisions.’’ Mont-
                                      gomery v. Commissioner, 127 T.C. 43, 65 (2006); see Johnson
                                      v. Commissioner, 620 F.2d 153, 155 (7th Cir. 1980), affg. T.C.
                                      Memo. 1978–426. Moreover, as respondent notes, the IRS pro-
                                      vided detailed guidance about this issue in Notice 2004–70,
                                      supra, published about a year before petitioners filed their
                                      amended 2003 and original 2004 returns.
                                         We conclude and hold that petitioners are not entitled to
                                      treat their section 951 inclusions as qualified dividend
                                      income under section 1(h)(11)(B).
                                                                           Decision will be entered for respondent.

                                                                               f




                                         13 Respondent asserts that when the 2004 instructions were drafted, before passage of the

                                      Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. 108–27, sec. 302, 117 Stat. 760,
                                      the distinction between dividend income and other ordinary income was of little import, all of
                                      it being taxed at the same rate.




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