Background

• Petitioners Osvaldo and Ana Rodriguez, Mexican citizens and US permanent residents, owned 100% of Editora Paso del Norte, S.A. de C.V. (Editora), a controlled foreign corporation (CFC).
• Editora operated in the US and Mexico, investing in real and tangible US property and earning interest and royalty income during the years at issue.
• Petitioners filed amended 2003 and original 2004 US federal income tax returns, reporting section 951(a)(1)(B) and 956 inclusions as qualified dividend income under section 1(h)(11)(B).
• Respondent determined deficiencies for 2003 and 2004 and treated the section 951 inclusions as ordinary income, not qualified dividends.
• Issue presented: whether section 951(a)(1)(B) inclusions are qualified dividend income under section 1(h)(11).

Issues

Key Cases Cited

• Boulware v. United States, 552 U.S. 421 (Supreme Court 2008) (distribution concept of dividends requires change in ownership)
• Commissioner v. Gordon, 391 U.S. 83 (Supreme Court 1968) (distribution and ownership transfer concepts for dividends)
• Gulf Oil Corp. v. Commissioner, 87 T.C. 548 (Tax Court 1986) (discusses tax treatment of earnings invested in U.S. property under Sec. 951/956)
• Limited, Inc. & Consol. Subs. v. Commissioner, 113 T.C. 169 (Tax Court 1999) (dividend equivalency rationale discussed in Subpart F context)
• Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609 (Supreme Court 1973) (statutory construction; avoidance of superfluous provisions)