                  T.C. Summary Opinion 2004-110



                      UNITED STATES TAX COURT



            CHESTER VALENTINE GACIOCH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1254-03S.              Filed August 23, 2004.


     Chester Valentine Gacioch, pro se.

     Edward D. Fickess and Jennifer S. McGinty, for respondent.



     PAJAK, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue.   The decision to be entered is not

reviewable by any other court, and this opinion should not be

cited as authority.
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     Respondent determined a deficiency of $1,099 in petitioner’s

2000 Federal income tax.

     The sole issue for decision is whether a mutual fund

distribution to petitioner is a capital gain dividend or a return

of capital.

     Some of the facts in this case have been stipulated and are

so found.   Petitioner resided in Sauquoit, New York, at the time

he filed his petition.   Section 7491(a) does not apply because

this case involves a legal issue.

     On February 10, 2000, petitioner acquired 955.543 shares of

Vanguard U.S. Growth Fund (mutual fund) from The Vanguard Group

(Vanguard).   The shares were acquired at $43.45 per share, for a

total cost basis of $41,518.34.

     In 2000, Vanguard distributed $7,118.80 to petitioner from

his mutual fund.   Vanguard sent petitioner a yearend statement,

which characterized the distribution as “Long-term gains”.

Vanguard reported the $7,118.80 in Box 2a, Total Capital Gain

Distributions, on a 2000 Form 1099-DIV, Dividends and

Distributions.   Respondent determined that the $7,118.80 was a

capital gain dividend.

     Petitioner timely filed his Form 1040, U.S. Individual

Income Tax Return, for taxable year 2000.   On Schedule D, Capital

Gains and Losses, attached to petitioner’s Form 1040, petitioner

reported $23,245 in “Capital gain distributions” from 6 different
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mutual funds.   The reported amount of $23,245 included $1,624

(rounded) of the $7,118.80 distribution from Vanguard.

     Petitioner contends that the $7,118.80 distribution

represents a $5,494 “return of capital” and $1,624 in “capital

gains”.   The difference between the admitted capital gains and

the distribution is the amount in issue of $5,494 (rounded down).

     Section 61(a) provides that gross income includes all income

from whatever source derived, unless excludable by a specific

provision of the Code.   Section 61(a)(7) lists dividends as

includable in gross income.   The definition of gross income in

the income tax law is inclusive on its face, and the concept of

inclusiveness is long established.     Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 429-430 (1955).    No specific Code

section excludes capital gain distributions from gross income.

     The distribution at issue here is from a mutual fund

(regulated investment company).   Sec. 851.   Distributions of

capital gain dividends are defined in section 852(b)(3)(C).       With

respect to distributions by mutual funds, section 852(b)(3)(B)

provides that “A capital gain dividend shall be treated by the

shareholders as a gain from the sale or exchange of a capital

asset held for more than 1 year.”    Section 1222(3) states that

the term “long-term capital gain” means “gain from the sale or

exchange of a capital asset held for more than 1 year”.    Net

long-term capital gains are subject to tax at the preferential
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rates set forth in section 1(h).    It has been held that,

consistent with this statutory mandate, the Form 1040, Individual

Income Tax Return, and its schedules “ensure that capital gain

distributions are taxed.”    Torre v. Commissioner, T.C. Memo.

2001-218, affd. 52 Fed. Appx. 965 (9th Cir. 2002).

     Aside from petitioner’s bare assertions, nothing in the

record indicates that any amount of the distribution represents a

return of capital.   Rather, the record indicates that the

distribution was a capital gain dividend.    On the yearend

statement, Vanguard reported the $7,118.80 as “long-term gains”.

Vanguard multiplied petitioner’s 955.543 shares by long-term

capital gain cash of $7.45 to calculate the $7,118.80

distribution.   Further, on the Form 1099-DIV, Vanguard reported

the $7,118.80 as a capital gain distribution, rather than as a

nontaxable distribution.    Significantly, subsequent to the

distribution, petitioner’s total cost basis and the number of

shares owned remained unchanged.    Petitioner admitted these facts

during trial.

     Petitioner contends that the $15,097.58 decrease in his

account value, from $41,518.34 to $26,420.76, resulted in a

“capital loss”.   He then alleges that $5,494 of the $7,118.80

distribution was a return of capital.    Realistically, the

decrease in petitioner’s account value was due to the decrease in

share price from $43.45 per share on February 10, 2000, to $27.65
                               - 5 -

per share on December 31, 2000.   We note that a capital loss is

allowable only if petitioner sold or exchanged some or all of his

shares.   Sec. 1211(b).

     We find that the distribution was a capital gain dividend.

It is clear from the record that the distribution was based upon

the number of shares owned by petitioner and that no portion was

allocated as a return of capital.

     On this record, we conclude that the entire $7,118.80

distribution received by petitioner was a taxable capital gain

dividend.   Accordingly, we sustain respondent’s determination.

     Contentions we have not addressed are irrelevant, moot, or

without merit.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                         Decision will be entered

                                    for respondent.
