T.C. Summary Opinion 2012-3

UNITED STATES TAX COURT

GEORGE EDWARD HAM, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5467-11S. Filed January 5, 2012.

George Edward Ham, pro se.

Douglas S. Polsky, for respondent.

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

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1 Pursuant to section

7463(b), the decision to be entered is not reviewable by any

1 Unless otherwise indicated, all subsequent section

references are to the Internal Revenue Code in effect for the

year in issue, and all Rule references are to the Tax Court Rules

of Practice and Procedure.
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other court, and this opinion shall not be treated as precedent

for any other case.

Respondent determined a deficiency in petitioner’s Federal

income tax of $2,736 for 2007. The sole issue for decision is

whether the full amount of mutual fund distributions petitioner

received in 2007 is includable in his gross income.

Background

Some of the facts have been stipulated, and they are so

found. Petitioner resided in the State of Missouri when the

petition was filed.

In late 2006 and throughout 2007, petitioner purchased

shares in four mutual funds managed by Janus Capital Group

(Janus), a regulated investment company (mutual fund).2 

Petitioner did not sell any of these mutual fund shares in 2007. 

At the end of 2007, petitioner received capital gain

distributions, ordinary dividend distributions, and qualified

dividend distributions (the distributions) from Janus in respect

of the mutual fund shares that he had purchased. Janus reported

the full amount of the distributions associated with each mutual

fund to petitioner on a Form 1099-DIV, Dividends and

Distributions. 

2 The mutual funds were not held in a tax-deferred account

such as an individual retirement account.
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Petitioner self-prepared his 2007 Federal income tax return,

listing the full amount of the distributions on an attachment

thereto. Petitioner believed, however, that a portion of the

distributions he received should be treated as a “return of

capital” and was not includable in his gross income for 2007. 

Consequently, petitioner reduced the amount of each distribution

by what he calculated to be the “return of capital” associated

with the purchase of the mutual fund shares, and he included only

the resulting net amount in his gross income. 

Petitioner subsequently received a notice of deficiency for

2007 in which respondent determined that the full amount of the

distributions were includable in petitioner’s gross income,

rather than the reduced amounts reported by petitioner.

Discussion3

Gross income is defined as “all income from whatever source

derived” unless otherwise specifically excluded. Sec. 61(a);

sec. 1.61-1(a), Income Tax Regs. Section 61(a)(7) provides that

dividends are includable in gross income. A shareholder who

receives dividends from a mutual fund “shall include such

dividends in gross income for the taxable year in which they are

received.” Sec. 1.852-4(a)(1), Income Tax Regs. Under section

3 We decide this case without regard to the burden of

proof.
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1(h), qualified dividends are subject to tax at preferential rates.

Section 852(b)(3)(B) provides that capital gain dividends

distributed from a mutual fund “shall be treated by the

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

asset held for more than 1 year.” That gain must be “realized in

the taxable year of the shareholder in which the dividend was

received.” Sec. 1.852-4(b)(1), Income Tax Regs. Section 1222(3)

defines “long-term capital gain” as “gain from the sale or

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

section 1(h), net long-term capital gains are also subject to tax

at preferential rates.4 

Petitioner does not dispute that he received the

distributions reported by Janus. Instead, petitioner asserts

that a portion of each distribution should be treated as a

“return of capital”. Under his “return of capital” theory,

petitioner posits that because he purchased the Janus mutual fund

shares between record dates, a portion of the purchase price he

paid for the shares represents “accrued dividends” that had

accumulated since the last record date. According to petitioner,

the distributions he received at the end of 2007 included these

“accrued dividends” that he had purchased. Petitioner contends

4 However, for purposes of sec. 1(h)(11), a capital gain

dividend distributed from a mutual fund is not considered a

dividend. Sec. 854(a).
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that the gross distributions must therefore be reduced by the

portions representing the “accrued dividends” he purchased

because, in petitioner’s view, those portions are treated as

“returns of capital” and should not be includable in his gross

income.

Gross income is an inclusive term with broad scope, intended

by Congress to “exert * * * ‘the full measure of its taxing

power.’” Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429

(1955) (quoting Helvering v. Clifford, 309 U.S. 331, 334 (1940)). 

Unless specifically excluded by another provision of the Internal

Revenue Code, the full amount of the distributions petitioner

received must be included in his gross income for 2007. See

Commissioner v. Glenshaw Glass Co., supra at 430. 

Petitioner points to no statutory provision that excludes

from gross income a portion of the distributions he received. 

Indeed, the methodology petitioner used to exclude a portion of

the distributions is without any statutory basis. Rather, with

respect to dividends, “The fact that the purchaser may have

included the amount of the dividend in his purchase price in

contemplation of receiving the dividend does not exempt him from

tax.” Sec. 1.61-9(c), Income Tax Regs. Consequently, we hold

that the full amount of the distributions in issue is includable

in petitioner’s gross income for 2007. 
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Conclusion

We have considered all of the arguments made by petitioner,

and, to the extent that we have not specifically addressed them,

we conclude that they are without merit.

To reflect our disposition of the disputed issue, and in

order to account for any advance payment made by petitioner, 

Decision will be entered

under Rule 155.