t c summary opinion united_states tax_court abdeia hassan petitioner v commissioner of internal revenue respondent docket nos 14565-17s 14566-17s filed date abdeia hassan pro_se monica e koch and aaron m greenberg for respondent summary opinion guy special_trial_judge these cases were heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the 1these cases were consolidated for purposes of trial briefing and opinion petitions were filed pursuant to sec_7463 the decisions to be entered are not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent issued separate notices of deficiency to petitioner determining federal_income_tax deficiencies and accuracy-related_penalties as follows year deficiency penalty sec_6662 dollar_figure dollar_figure big_number big_number petitioner filed timely petitions for redetermination with the court when the petitions were filed she resided in maine respondent concedes that petitioner is not liable for accuracy-related_penalties for the years in issue the issues remaining for decision for the taxable_year are whether petitioner earned self-employment_income of dollar_figure is eligible for head_of_household filing_status is entitled to dependency_exemption deductions for 2unless otherwise indicated all section references are to the internal_revenue_code as amended and in effect for the taxable_year sec_2014 and sec_2015 years in issue and all rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar three children is entitled to child tax_credits and is entitled to the earned_income_credit eic the issues remaining for decision for the taxable_year are whether petitioner earned self-employment_income of dollar_figure earned wage income of dollar_figure is eligible for head_of_household filing_status is entitled to dependency_exemption deductions for three children is entitled to child tax_credits and is entitled to the eic background3 i petitioner’s children petitioner and mohamed kaviro met in texas around while it is unclear whether petitioner and mr kaviro ever lived together in texas they eventually moved to maine and lived together there for several years beginning in during the years in issue however petitioner and mr kaviro lived in separate four-bedroom apartments in the same building petitioner and mr kaviro had six children s m a born in twins ha m a and hu m a born in u m a born in m m a born in and 3some of the facts have been stipulated y a born in petitioner’s three youngest children resided with her during the years in issue although the monthly rent on petitioner’s apartment was approximately dollar_figure to dollar_figure during the years in issue she actually paid rent of approximately dollar_figure per month and the balance was subsidized under a federal rental assistance program petitioner’s children received public assistance including benefits from the supplement nutritional assistance program snap and medicaid ii petitioner’s tax returns petitioner and mr kaviro filed federal_income_tax returns for the taxable years and claiming married filing joint status for the taxable_year petitioner filed a separate_return and claimed head_of_household filing_status petitioner filed federal_income_tax returns for and reporting self-employment_income of dollar_figure and dollar_figure respectively petitioner earned wages of dollar_figure in paid_by maine people’s resource center and dollar_figure in paid_by wal-mart 4for privacy reasons it is the court’s policy to refer to minors by their initials see rule a discussion generally the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 290_us_111 deductions and credits are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deduction or credit claimed rule a 308_us_488 292_us_435 petitioner does not contend that the burden_of_proof should shift to respondent in accordance with the provisions of sec_7491 and there is no justification on this record for doing so i wages and self-employment_income although respondent determined that petitioner did not earn any income during the years in issue the record shows that petitioner earned wages of dollar_figure and dollar_figure during the taxable_year sec_2014 and sec_2015 respectively respondent also determined that petitioner did not earn self-employment_income of dollar_figure and dollar_figure as reported on her tax returns for and respectively respondent’s determination that petitioner did not earn self- employment income is related to the eic discussed in greater detail below which is computed as a percentage of the taxpayer’s earned_income sec_32 petitioner offered no testimony or business records in an effort to substantiate the self-employment_income and therefore respondent’s determinations as to those items are sustained ii filing_status sec_1 provides a special tax_rate for an individual who qualifies for head_of_household filing_status sec_2 generally defines a head_of_household as an individual taxpayer who is unmarried as of the close of the taxable_year and is not a surviving_spouse and maintains as her home a household that constitutes for more than one-half of the taxable_year the principal_place_of_abode as a member of such household of a a qualifying_child of the individual as defined in sec_152 determined without regard to sec_152 or b any other person who is a dependent of the taxpayer if the taxpayer is entitled to a deduction for the taxable_year for such person under sec_151 see 128_tc_13 sec_1_2-2 income_tax regs provides that a taxpayer is considered to have maintained a household if she and a qualifying_child actually occupy the household for the entire taxable_year sec_1_2-2 income_tax regs further provides that a taxpayer is considered to have maintained a household only if she pays more than one-half the costs thereof for the taxable_year the costs of maintaining a household are the expenses_incurred for the mutual benefit of the occupants including property taxes mortgage interest rent utility charges upkeep and repairs property insurance and food consumed on the premises id respondent determined that petitioner did not qualify for head_of_household filing_status during the years in issue and assigned her married filing separate status on the alternative grounds that she had entered into a common_law marriage with mr kaviro and that she failed to show that she had paid more than one-half of the costs of maintaining a household that was the principal_place_of_abode of a qualifying_child a common_law marriage state law determines the marital status of taxpayers for purposes of the federal tax laws 47_tc_415 in general whether a taxpayer is married for purposes of the federal_income_tax is determined at the close of each tax_year sec_7703 although the state of texas recognizes common_law marriages see tex fam code ann sec_2 a west there is no persuasive evidence in the record to support the proposition that the relationship between petitioner and mr kaviro was a legal and valid common_law marriage at anytime relevant to these proceedings in short while petitioner and mr kaviro once lived in texas there is no evidence that they agreed to be married or that they ever lived together there petitioner testified credibly that she was never married to mr kaviro and that she did not understand the implications arising from filing joint federal_income_tax returns with him moreover petitioner resided in maine throughout the years in issue common_law marriages are not recognized as valid under the laws of maine pierce v sec’y of u s dep’t of health educ welfare a 2d me in any event she did not cohabit with mr kaviro during the years in issue nor is there any indication that she represented to others that she was married to him on this record we conclude that petitioner was not married during the years in issue b household support as discussed in detail below we conclude that petitioner’s three youngest children were her qualifying children within the meaning of sec_152 during the years in issue we nevertheless agree with respondent that petitioner failed to establish that she provided over one-half of the cost of maintaining the apartment in which she and the children resided see sec_1_2-2 income_tax regs as an initial matter petitioner failed to establish the total cost of maintaining the apartment the record reflects that petitioner’s rent was heavily subsidized and there is no evidence of her actual contribution to other household expenses such as utilities and food consumed on the premises see eg huynh v commissioner tcmemo_2002_237 consequently respondent’s determination that petitioner is not eligible for head_of_household filing_status is sustained iii dependency_exemption deductions sec_151 provides that a taxpayer generally is allowed a deduction for the applicable exemption_amount for each individual who is a dependent sec_152 defines the term dependent in relevant part to include a qualifying_child sec_152 generally defines a qualifying_child as an individual who bears a specified relationship to the taxpayer eg a child of the taxpayer has the same principal_place_of_abode as the taxpayer for more than one-half of such taxable_year meets certain age requirements eg has not attained the age of has not provided over one-half of such individual’s own support for the taxable_year at issue and has not filed a joint_return for that year sec_152 as previously mentioned petitioner maintains that she is entitled to dependency_exemption deductions for her three youngest children there is no dispute that the children satisfied the relationship and age requirements of sec_152 and c likewise none of the children filed a joint tax_return during the years in issue see sec_152 petitioner testified and apartment rental records and medical records indicate that the children lived with her throughout the taxable years in issue see sec_152 the question that remains is whether any of the children provided over one- half of his or her own support within the meaning of sec_152 in addressing this issue a taxpayer must establish the total cost of monetary support expended on behalf of a claimed dependent from all sources for the relevant year sec_1_152-1 income_tax regs the term support includes items such as food shelter clothing medical and dental care education and the like id to determine whether an individual provided more than half of the support for himself or herself the amount of support provided by the individual is compared to the individual’s total amount of support id subdiv ii petitioner did not testify or provide other evidence that would establish the total amount of support expended on behalf of any of the children in question she did state however that the children received various forms of public assistance including snap payments and healthcare services through medicaid as previously mentioned petitioner’s rent was heavily subsidized considering all the facts and circumstances the court finds that the children in question did not provide over one-half of the total amount of support that each received during the years in issue see eg pavia v commissioner tcmemo_2008_270 accordingly petitioner is entitled under sec_151 to the claimed dependency_exemption deductions for the three children for the years in issue iv child_tax_credit sec_24 and c provides that a taxpayer is entitled to a child_tax_credit with respect to each qualifying_child as defined in sec_152 who has not attained age and for whom the taxpayer is allowed a deduction under sec_151 sec_24 provides that a portion of the child_tax_credit commonly referred to as the additional_child_tax_credit may be refundable as discussed above the children in question were petitioner’s qualifying children for purposes of sec_152 and satisfy the age limitation under sec_24 therefore petitioner ostensibly qualifies for child tax_credits for the years in issue 5in the light of the modest amount of income that petitioner earned in it is unclear whether she will receive any child_tax_credit for that year nevertheless the parties will address that issue in preparing computations under rule v earned_income_credit sec_32 allows an eligible_individual an eic against income_tax in an amount equal to the credit percentage of so much of the individual’s earned_income for the taxable_year as does not exceed the earned_income amount the term earned_income is defined in sec_32 and includes wages and net_earnings_from_self-employment for taxable years beginning after and before the credit percentage in the case of a taxpayer with three or more qualifying children i sec_45 sec_32 a taxpayer claiming the eic must establish that she had earned_income and the amount of that income see eg blore v commissioner tcmemo_2000_326 sec_32 defines an eligible_individual in relevant part as an individual who has a qualifying_child for the taxable_year the term qualifying_child is defined in sec_32 to mean a qualifying_child of the taxpayer as defined in sec_152 determined without regard to paragraph d thereof and sec_152 on this record we conclude that petitioner is an eligible_individual within the meaning of sec_32 in particular petitioner’s three children are qualifying children under sec_152 and her wages as opposed to the incorrectly reported self-employment_income constitute earned_income accordingly petitioner is entitled to eics for the years in issue based on the wages she earned to reflect the foregoing decisions will be entered under rule


id office uilc cca_2009120315011152 -------------- 6050n number release date from ----------------------- sent thursday december pm to ------------------ cc --------------------- subject re coordination on sec_6050n issue this responds to your question about the applicability of sec_6050n and whether the payments to artists in the situation described below are royalty payments for which an information_return backup withholding would be required based upon the facts presented we concur that the proceeds received by the artists constitute royalties artist submits music to website website charges artist one time fee for each album submitted by artist 3rd party downloads music for a fee set by artist website retains a percentage of this fee and forwards the rest to the artist although not part of your inquiry i wanted to highlight that the regulation cited a -4 b does not impose backup withholding but requires the withholding and deposits to be reported on form_945 also the penalty for failure to backup withhold is under sec_3403 where the payor is ultimately liable for the amount that it should have withheld the failure to deposit penalty under sec_6656 generally is only asserted with respect to amounts that were actually withheld but not deposited see generally sec_6302 and the regulations thereunder please contact me with any questions or comments


t c memo united_states tax_court randal w howard petitioner v commissioner of internal revenue respondent docket no filed date randal w howard pro_se brin k huss for respondent memorandum findings_of_fact and opinion ruwe judge respondent determined deficiencies in petitioner's federal income taxes and additions to tax as follows additions to tax_year deficiency sec_6651 a sec_6654 1dollar_figure 7dollar_figure -- big_number dollar_figure dollar_figure big_number dollar_figure dollar_figure ‘respondent asserts that the deficiency be increased to dollar_figure in the amended answer because the original deficiency determination gave petitioner credit for a prior erroneous assessment respondent asserts that the addition_to_tax be increased to dollar_figure in the amended answer because the original deficiency determination gave petitioner credit for a prior erroneous assessment after concessions the issues for decision are whether petitioner received compensation_for his labor whether payments made to petitioner for his labor should be included in petitioner’s taxable_income whether petitioner is liable for additions to tax for failing to timely file federal_income_tax returns and for failing to pay estimated_taxes and whether a penalty should be awarded to the united_states under sec_6673 findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and supplemental stipulation of facts are incorporated herein by this reference petitioner resided in tucson arizona at the time he filed his petition ‘unless otherwise indicated all section references are to the internal_revenue_code applicable to the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure during the years and petitioner worked as a broadcast engineer for the radio station family life broadcasting system flbs located in tucson arizona for the year petitioner and flbs entered into an agreement whereby petitioner was classified as an independent_contractor and was to receive payments of dollar_figure per month for part-time performance in petitioner received compensation of dollar_figure from flbs petitioner submitted a form_1040 u s individual_income_tax_return which was received by the internal_revenue_service on date petitioner did not sign the return under penalties of perjury instead writing the words under protest in the signature line petitioner attached to his form_1040 the following schedule d capital_gains_and_losses form 1099-misc showing dollar_figure compensation from flbs statement of randal william howard which generally states that petitioner is not liable for tax for and declaration of randal william howard which contained the following statement during the year i sold labor each day that i worked at the family life broadcasting system for the year i received dollar_figure from the family life broadcasting system based upon the facts above and the provisions of the internal_revenue_code irc dollar_figure a i had a total basis cost of at least dollar_figure in the labor i sold to the family life broadcasting system petitioner reported the dollar_figure received from flbs on schedule d as an amount received for labor and claimed a basis in the labor of dollar_figure resulting in zero gain no tax was withheld q4e- from petitioner’s compensation from flbs petitioner’s work status at flbs changed from independent_contractor to employee at the beginning of and he remained an employee through on date petitioner signed a form_w-4 employee’s withholding allowance certificate on which he claimed nine withholding_allowances as an employee petitioner received life health and disability insurance coverage flbs paid wages to petitioner during and in the amounts of dollar_figure and dollar_figure respectively flbs filed a form_w-2 wage and tax statement reflecting dollar_figure in wages paid to petitioner and dollar_figure withheld for federal income taxes flbs filed a form_w-2 reflecting dollar_figure in wages paid to petitioner and dollar_figure withheld for federal income taxes except for the amounts withheld from his wages petitioner did not pay any federal_income_tax for the years and petitioner did not file federal_income_tax returns for the years and based on the form_1040 submitted by petitioner for respondent assessed tax of dollar_figure and an addition_to_tax under sec_6651 in the amount of dollar_figure this assessment was erroneous because the unsigned form_1040 that petitioner submitted was not a valid_return on date respondent issued a notice_of_deficiency for the year in the notice_of_deficiency the previously assessed tax and additions to tax - - dollar_figure and dollar_figure were subtracted from the corrected tax_liability reducing the deficiency and addition_to_tax amounts determined in the notice_of_deficiency on date respondent issued separate notices of deficiency for the years and opinion deficiency determinations on brief petitioner argues that the presumption of correctness does not apply and that respondent has failed to prove that petitioner received taxable_income for the years in issue we disagree the notices of deficiency were based on information obtained from flbs and from petitioner’s own statements at trial a representative of flbs testified that flbs paid petitioner for his services in the amounts determined in the notices of deficiency and petitioner admitted at trial that he received those amounts from flbs in return for his services petitioner has made various other claims including that payments for his labor are not income that he has a basis in such labor equal to the amount of the payments received that the income_tax 1s unconstitutional and that he was a nonresident_alien with no relationship to the government of the united_states all of these arguments have been consistently rejected by the courts and can be accurately characterized as timeworn - - protester type rhetoric accordingly we hold that the payments received by petitioner from flbs during and constitute taxable_income to petitioner ’ respondent bears the burden of proving the alleged increased deficiency for see rule a respondent argues that the form_1040 that petitioner submitted for was invalid and as a result respondent could not validly make assessments based on the form_1040 without first sending to petitioner a deficiency_notice for that year respondent argues that the erroneous assessment should not have been subtracted from the total corrected tax_liability for in the notice_of_deficiency respondent states that the erroneous assessment of tax and addition_to_tax must and will be abated we agree petitioner’s form_1040 for was invalid because it was not signed under penalties of perjury see sec_6065 82_tc_766 affd 793_f2d_139 6th cir see also 72_tc_818 stating that a signature on an attached letter is not considered an imputed signature on the return itself respondent has established the correct amount of petitioner’s federal_income_tax liability and presented sufficient respondent determined that petitioner was self-employed for the year and a regular employee for the years and respondent has presented ample evidence in the form of testimony employment agreements benefits and tax forms to sustain this position - evidence to carry the burden_of_proof regarding the increased deficiency for additions to tax sec_6651 imposes an addition_to_tax for failure_to_file a required return on or before the specified filing_date the addition_to_tax i sec_5 percent of the amount_required_to_be_shown_as_tax on the return and an additional percent is imposed for each additional month or fraction thereof during which the failure continues but not to exceed percent in the aggregate see sec_6651 this addition_to_tax may be avoided only if petitioner can show that his failure_to_file was due to reasonable_cause and not willful neglect see rule a 469_us_241 the form_1040 that petitioner submitted for was invalid because it was not signed under penalties of perjury see sec_6065 beard v commissioner supra pincite see also richardson v commissioner supra pincite petitioner did not file or submit any returns for or there is no evidence in the record to support a finding that petitioner’s failure_to_file returns for and was due to reasonable_cause and not willful neglect we hold that the addition_to_tax under sec_6651 applies for the years in issue we also hold that the increased addition_to_tax in the amount of dollar_figure applies for because as previously stated respondent has established --- - the correct deficiency amount for respondent also determined that petitioner is liable for additions to tax pursuant to sec_6654 for failure to pay estimated_taxes if the payments of tax through withholding or the payment of estimated guarterly tax_payments during the course of the year are not equal to the statutorily required amount then imposition of this addition_to_tax is automatic unless one of the statutory exceptions applies to the taxpayer see sec_6654 75_tc_1 the burden of qualification for such exception is on the petitioner see 78_tc_304 petitioner has failed to show he qualifies for any exception accordingly we hold that petitioner is liable for additions to tax under sec_6654 for the years and penalties sec_6673 permits this court to award a penalty of up to dollar_figure to the united_states when the taxpayer has maintained or instituted an action primarily for delay or the taxpayer’s position is frivolous or groundless see sec_6673 this is not the first time petitioner has asserted baseless arguments and used delay tactics petitioner previously made the same frivolous arguments in this court and was admonished for presenting to the court nothing more than tax_protester rhetoric and legalistic gibberish which have absolutely no merit --- - and deserve no further attention from this court howard v commissioner tcmemo_1998_57 petitioner has knowingly and repeatedly advocated frivolous and groundless positions his conduct has wasted the time and resources of this court accordingly a penalty is awarded to the united_states under sec_6673 in the amount of dollar_figure an appropriate order will be issued granting respondent’s motion for a penalty and decision will be entered under rule


t c no united_states tax_court barry m smith and rochelle smith petitioners v commissioner of internal revenue respondent docket no filed date ps owned through a pair of grantor trusts and an s_corporation controlled_foreign_corporations cfcs incorporated in hong kong and later in cyprus in the hong kong cfc paid ps a dividend of dollar_figure million in the cypriot cfc paid ps a dividend of dollar_figure million in the cypriot cfc also canceled an account re- ceivable owed by ps’ s_corporation that account receivable had an outstanding balance of dollar_figure million when it was canceled r determined that the dividend paid_by the hong kong cfc in was taxable as ordinary dividend income under sec_962 to the extent of the difference between the amount the hong kong cfc had distributed to them in and the tax they had previously paid on account of prior sec_951 inclusions to which that e_p was attributable r next determined that the cypriot cfc was not a qualified_foreign_corporation within the meaning of sec_1 and hence that the dollar_figure million dividend the cypriot cfc paid ps in was taxable as ordinary dividend in- come not as qualified_dividend_income subject_to a reduced_rate of tax under sec_1 finally r determined that the cancel- lation of the account receivable balance owed to the cypriot cfc was taxable to ps in as a constructive_dividend under sec_301 sec_316 and sec_1366 held the hong kong cfc was neither a domestic cor- poration nor a qualified_foreign_corporation under sec_1 its distribution of dollar_figure million to ps therefore was not qualified_dividend_income under sec_1 but rather was taxable to them under sec_962 at ordinary- income rates held further petitioners have not established that the act of state doctrine applies to require that we accord dispositive effect to a residency certificate issued by the cyprus ministry of finance asserting that the cypriot cfc was a resident of cyprus during because there exist genuine disputes of material fact concerning the cfc’s residency summary_judgment is inappropriate on the question whether the cypriot cfc was a qualified_foreign_corporation and hence as to whether the dollar_figure million dividend it paid ps in was qualified_dividend_income under sec_1 held further ps received from the cypriot cfc in a constructive distribution of dollar_figure million that was taxable to them as a dividend under sec_301 and sec_316 desiree e fernandez jose m ferrer summer a lepree jeffrey l rubinger and samuel c ullman for petitioners jeffrey b fienberg michael s kramarz sergio garcia-pages and richard a rappazzo for respondent opinion lauber judge during and petitioners owned through a pair of domestic grantor trusts and an s_corporation controlled_foreign_corporations cfcs incorporated in hong kong and later in cyprus the internal_revenue_service irs or respondent determined that petitioners during these years had received actual or constructive dividends from the hong kong cfc and from the cypriot cfc on the basis of these and other adjustments the irs determined for petitioners’ and taxable years deficiencies of dollar_figure and dollar_figure respectively this case is currently before the court on cross-motions for partial summary_judgment under rule these motions ask that we decide three questions whether a dollar_figure dividend that the hong kong cfc paid peti- tioners in should be deemed to have been distributed by a domestic corpora- tion so as to be subject_to a reduced_rate of tax as a qualified_dividend under sec_1 1all statutory references are to the internal_revenue_code code in effect for the tax years at issue and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar whether a dollar_figure dividend that the cypriot cfc paid petitioners in was received from a qualified_foreign_corporation so as to be subject_to a reduced_rate of tax as a qualified_dividend under sec_1 and whether petitioners received a constructive_dividend of dollar_figure in when the cypriot cfc canceled a debt owed to it by petitioners’ s corpora- tion the parties have filed cross-motions for partial summary_judgment on the first and third questions and they agree that these questions are encumbered by no disputed issues of material fact we agree that these two questions may appropri- ately be decided summarily and we answer both questions in respondent’s favor petitioners seek summary_judgment on the second question and respondent opposes that motion on the ground that material factual disputes exist concerning the cypriot cfc’s residency petitioners urge that they are entitled to judgment as a matter of law on the theory that the act of state doctrine requires us to accept as dispositive of the cypriot cfc’s status as a bona_fide_resident of cyprus a cer- tification from the cyprus ministry of finance ministry to that effect viewing the facts and inferences drawn from them in the light most favorable to respondent as the nonmoving party we conclude that petitioners have not established that the act of state doctrine applies because there exist genuine disputes of material fact concerning the cypriot cfc’s residency we will deny petitioners’ motion for partial summary_judgment on the second question background the following facts are derived from the parties’ pleadings and motion pa- pers the declarations and the exhibits attached thereto and the parties’ first stipu- lation of facts petitioners resided in florida when they filed their petition a business structure beginning in petitioners owned and operated a group of domestic and foreign_corporations that manufactured and sold consumer electronic products through a pair of grantor trusts petitioners owned hopper radio of florida inc hopper us an s_corporation for federal_income_tax purposes petitioners were treated as owning of the stock of hopper us and they were thus required to take into account of its income see sec_1361 and b hopper us was the sole shareholder of memcorp inc memcorp us a florida corporation as a qualified_subchapter_s_subsidiary of hopper us memcorp us was treated as a disregarded_entity see sec_1361 b for sake of simplicity we will refer to all transactions conducted by memcorp us as having been conducted by hopper us directly from date until date hopper us was treated as owning through memcorp us all the stock of memcorp asia ltd memcorp hk memcorp hk was incorporated in hong kong and from the date of its in- corporation until date was a cfc within the meaning of sec_957 for subpart_f purposes hopper us although an s_corporation was treat- ed as a domestic_partnership and its shareholders were treated as partners of such partnership see sec_1373 petitioners were accordingly required to include in their gross_income under sec_702 items of income loss deduction and foreign_tax_credit attributable to memcorp hk and any other cfcs that hopper us might own before the tax years at issue petitioners began winding down their active business operations in date they sold to a third party for dollar_figure million the operating_assets of hopper us and memcorp hk this left memcorp hk with substantial cash both from its prior operations and from the sale proceeds peti- tioners planned to have this cash distributed to them petitioners hoped that the contemplated distribution could be treated as qualified_dividend_income qdi under sec_1 which would allow the dividend to be taxed at a rate of or lower see sec_1 b this would be possible only if memcorp hk were a qualified_foreign_corporation see sec_1 but memcorp hk’s residency presented a complica- tion in that respect a qualified_foreign_corporation is defined to mean a com- pany that is either incorporated in a possession_of_the_united_states or is eli- gible for benefits of a comprehensive_income_tax_treaty with the united_states sec_1 memcorp hk was not incorporated in a u s possession and hong kong did not have an income_tax treaty with the united_states petitioners accordingly decided to move memcorp hk to cyprus which did have an income_tax treaty with the united_states toward that end petitioners in date incorporated hopper cyprus as a subsidiary of hopper us from the date of its incorporation hopper cyprus has been a cfc within the meaning of sec_957 on date hopper us transferred to hopper cyprus all of its shares in memcorp hk memcorp hk then filed with the irs and the irs ap- proved a form_8832 entity classification election by which memcorp hk elect- ed to be treated as a disregarded_entity the ultimate effect of these transaction sec_2although there is an income_tax treaty between the united_states and the people’s republic of china it does not cover hong kong which has an indepen- dent taxation system see agreement for the avoidance of double_taxation and the prevention of tax_evasion with respect to taxes on income china-u s art date t i a s no big_number stating that the taxes to which the treaty applies are those in the united_states and in the people’s republic of china notice_97_40 1997_2_cb_287 was that as of date memcorp hk reorganized itself as hopper cyprus in a tax-free reorganization under sec_368 by virtue of this reorganization hopper cyprus inherited all the assets pre- viously owned by memcorp hk these assets included a large sum of cash generated from the sale of memcorp hk’s operating_assets and an account re- ceivable that hopper us had owed to memcorp hk for many years b prior year audits the irs examined petitioners’ tax returns for and and the results of those examinations are relevant to certain issues we must address the irs determined that memcorp hk during held an investment of dollar_figure in united_states_property within the meaning of sec_956 u s property which was attributable to the account receivable mentioned above that hopper us owed to memcorp hk the irs accordingly determined that petitioners for were required to include that amount in gross_income under sec_951 petitioners acquiesced in this determination and filed an amended_return for electing the benefits of sec_962 with respect to the dollar_figure gross_income inclusion this election allowed them to treat this inclusion as if the dollar_figure were received by a domestic_corporation sec_962 this per- mitted petitioners to be taxed at the corporate tax_rate under sec_11 and thus reduced their current tax_liability the irs accepted petitioners’ election and petitioners paid tax of dollar_figure on the sec_951 inclusion for this pattern repeated itself for the tax_year in its examination of peti- tioners’ return the irs determined that memcorp hk held during an investment of dollar_figure in u s property again attributable to the account re- ceivable that hopper us owed to memcorp hk petitioners again filed an amended_return electing the benefits of sec_962 and they paid tax of dollar_figure at the sec_11 corporate tax_rate c transactions during and in mid-2008 several months before its reorganization to cyprus memcorp hk distributed dollar_figure to hopper us this amount equaled the sum of peti- tioners’ sec_951 inclusions for and dollar_figure dollar_figure dollar_figure because petitioners had elected the benefits of sec_962 for both inclusions this distribution was subject_to sec_962 captioned special rule for actual distributions 3petitioners also became eligible to claim deemed-paid foreign tax_credits under sec_902 and sec_960 for the foreign taxes paid_by memcorp hk with respect to the earnings_and_profits e_p included in petitioners’ gross_income see sec_962 those credits are not at issue here sec_962 creates an exception to sec_959 which generally excludes from a u s shareholder’s gross_income a cfc’s previously taxed e_p sec_962 provides that if a u s shareholder has elected the benefits of sec_962 with respect to prior sec_951 inclusions the related e_p of the cfc when actually distributed to the u s shareholder shall notwithstand- ing the provisions of sec_959 be included in gross_income to the extent that such e_p so distributed exceed the amount of tax previously paid_by the u s shareholder the total amount of tax petitioners paid on account of the and in- clusions was dollar_figure viz dollar_figure dollar_figure memcorp hk had e_p of dollar_figure attributable to those prior inclusions and that e_p was actually distributed to petitioners in the excess of the amount actually distributed to petitioners in dollar_figure over the tax they had previously paid on account of the sec_951 inclusions dollar_figure is dollar_figure petitioners have stipulated that they did not include this dollar_figure in gross_income under sec_962 and sec_702 for at the beginning of hopper cyprus had among the assets on its books a large account receivable owed by hopper us this was the same open account receivable previously held by memcorp hk that was the focus of the irs’ examination of petitioners’ and returns on date hopper cyprus wrote off dollar_figure the then-outstanding balance of the ac- count thus canceling the debt that hopper us owed to it d cyprus competent_authority proceedings on date hopper cyprus paid a cash dividend of dollar_figure to hopper us on their joint_return for petitioners reported this dividend as qualified_dividend_income under sec_1 they based this posi- tion on the theory that hopper cyprus was a qualified_foreign_corporation within the meaning of sec_1 petitioners alleged in their petition that hopper cyprus had obtained a tax residency certificate from the cyprus tax authorities confirming its cyprus tax res- idence during petitioners subsequently amended their petition to allege that hopper cyprus had obtained a confirmation letter of amicorp cyprus ltd administrators of hopper cyprus confirming that hopper cyprus was a tax resi- dent of cyprus during all relevant times in date respondent filed and we granted a motion to stay proceedings in this case temporarily pending the out- come of consultations and information exchanges between the u s competent_authority and the competent_authority of the republic of cyprus under the convention for the avoidance of double_taxation and the prevention of fiscal evasion with respect to taxes on income cyprus-u s art date t i a s no big_number treaty respondent filed that motion to learn the facts surrounding petitioners’ request for and cyprus’ issuance of certificates regarding hopper cyprus’ alleged residency in that country the irs received responses from the cypriot competent_authority on july and date and date and those responses are included in the record of this case e irs examination petitioners jointly filed form sec_1040 u s individual_income_tax_return for and and the irs selected both returns for examination as a result of this examination the irs determined among other things that for petitioners had failed to report as ordinary dividend income under sec_962 the dollar_figure difference between the amount memcorp hk had distributed to them in and the tax they had previously paid on ac- count of the prior sec_951 inclusions to which that e_p was attributable for petitioners had erred in reporting the dollar_figure dividend from hopper cyprus not as an ordinary dividend but as qualified_dividend in- come subject_to a reduced_rate of tax under sec_1 and for petitioners had failed to report as a constructive_dividend un- der sec_301 sec_316 and sec_1366 the dollar_figure balance of the account re- ceivable owed by hopper us which hopper cyprus had canceled in date on the basis of these and other adjustments the irs on date issued petitioners a timely notice_of_deficiency determining a deficiency of dollar_figure for and dollar_figure for petitioners timely petitioned this court for redetermination of these deficiencies discussion i summary_judgment standard summary_judgment is intended to expedite litigation and avoid costly time- consuming and unnecessary trials see 116_tc_73 either party may move for summary_judgment upon all or any part of the legal issues in controversy rule a a motion for summary_judgment or partial summary_judgment will be granted only if it is shown that there is no genuine dispute as to any material fact and that a decision may be ren- dered as a matter of law see rule b 118_tc_226 the moving party bears the burden of proving that there is no genuine dis- pute as to any material fact for this purpose the court views all factual materials and inferences in the light most favorable to the nonmoving party 85_tc_812 however the nonmoving party may not rest upon the mere allegations or denials of his pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial rule d see 98_tc_518 aff’d 17_f3d_965 7th cir the parties have filed cross-motions for partial summary_judgment on the first and third questions presented evidencing their belief that these questions are encumbered by no genuine disputes of material fact we concur in that assessment and conclude that those questions may be summarily adjudicated as explained more fully below we reach a different conclusion as to the second question con- cerning hopper cyprus’ residency ii governing statutory framework a cfc is a foreign_corporation more than of whose stock in terms of voting power or value is owned directly indirectly or constructively by united_states_shareholders u s shareholders sec_957 a u s shareholder is a united_states_person as defined in sec_957 who owns directly indirectly or constructively or more of the total combined voting power of the cfc’s stock sec_951 the parties agree that all of petitioners’ foreign subsidiaries were cfcs at the relevant times and that petitioners were u s shareholders of these cfcs sec_951 requires that a u s shareholder owning cfc stock on the last day of the cfc’s taxable_year include in gross_income among other things the amount determined under sec_956 with respect to such shareholder for such year under sec_956 the amount determined under sec_956 with respect to a u s shareholder is the lesser_of the excess if any of a such shareholder’s pro_rata share of the average of the amounts of united_states_property held directly or indirectly by the controlled_foreign_corporation as of the close of each quarter of such taxable_year over b the amount of earnings_and_profits described in sec_959 with respect to such shareholder or such shareholder’s pro_rata share of the applicable_earnings of such controlled_foreign_corporation u s property includes among other things an obligation of a united_states_person sec_956 an obligation generally includes any bond note debenture account receivable note receivable open account or other indebtedness sec_1_956-2t temporary income_tax regs fed reg date sec_962 sets forth an alternative taxing regime for individual u s share- holders who invest abroad through cfcs sec_962 provides that an indi- vidual u s shareholder may elect to be taxed on his sec_951 inclusions at the corporate tax_rates specified in sec_11 and sec_55 this election may also entitle the individual to claim deemed-paid foreign tax_credits ftcs under sec_960 which would otherwise be unavailable see sec_962 sec_962 captioned special rule for actual distributions provides that upon a cfc’s actual distribution of e_p previously included in a u s share- holder’s gross_income e_p that shareholder must include such distribution in gross_income to the extent it exceeds the u s tax he previously paid with re- spect to the relevant sec_951 inclusion s regulations under sec_962 implement this rule by bifurcating the e_p into two categories excludable e_p and taxable e_p see sec_1_962-3 income_tax regs ex- cludable e_p equal the amount of u s income_tax previously paid on the sec_951 inclusions and the remaining amounts are taxable e_p ibid sec_301 and sec_316 govern the characterization for federal_income_tax purposes of corporate_distributions of property to shareholders if the distributing_corporation has sufficient e_p the distribution is a dividend that the shareholder must include in gross_income sec_301 sec_316 if the distribution exceeds the corporation’s e_p the excess represents a nontaxable return_of_capital or capital_gain sec_301 and a dividend may be formally declared or it may be constructive see 552_us_421 89_tc_1280 a constructive_dividend is an economic benefit conferred upon a shareholder by a corporation without an expectation of repayment truesdell t c pincite citing 368_f2d_439 9th cir aff’g t c memo as enacted in the jobs and growth tax relief reconciliation act of pub_l_no sec_302 sec_117 stat pincite sec_1 makes preferential tax_rates available for qdi qdi includes dividends received during the taxable_year from domestic corporations and qualified foreign_corporations sec_1 a qualified_foreign_corporation is a corporation that is incorporated in a possession_of_the_united_states or is eligible for benefits of a comprehensive_income_tax_treaty with the united_states sec_1 dividends that do not qualify as qdi under these provisions are subject_to tax at the rates applicable to the taxpayer’s ordinary_income 4during the years at issue sec_1 set forth reduced rates of tax gen- erally ranging from to upon an individual taxpayer’s net_capital_gain de- fined to include qdi iii analysis a distribution from memcorp hk the first issue concerns the dollar_figure of taxable e_p that memcorp hk distributed to petitioners in mid-2008 petitioners now agree that this distrib- ution was a dividend and that they were required by sec_962 to include it in gross_income the parties’ dispute concerns the character of this dividend noting that memcorp hk was neither a domestic_corporation nor a qualified_foreign_corporation sec_1 respondent contends that the dividend was taxable to petitioners at ordinary-income rates petitioners contend that the dollar_figure was distributed by a notional domestic_corporation that the dividend thus constituted qdi under sec_1 and that the divi- dend was accordingly taxable at the reduced rates specified in sec_1 we think respondent has the better side of this argument memcorp hk was incorporated in hong kong and thus was not a domestic_corporation sec_1 see sec_7701 the term ‘domestic’ when applied to a corporation means created or organized in the united_states or under the law of the united_states or of any state if a company is not incorporated in a possession_of_the_united_states moreover it cannot be a qualified_foreign_corporation unless it is eligible for benefits of a comprehen- sive income_tax treaty with the united_states sec_1 petitioners concede that there did not exist during and does not exist to this day any form of income_tax treaty between the united_states and hong kong and peti- tioners do not contend that memcorp hk was a resident of any other country that had a tax_treaty with the united_states petitioners’ theory for treating the dollar_figure dividend as qdi is based on their having elected to receive the benefits of sec_962 by virtue of those elec- tions the tax they paid on the sec_951 inclusions was an amount equal to the tax which would be imposed under sec_11 and sec_55 if such amounts were received by a domestic_corporation sec_962 petitioners likewise became entitled to deemed-paid ftcs because the prior inclusions were treated as if they were received by a domestic_corporation sec_962 and the effect of sec_962 is to treat a subsequent distribution of taxable e_p essentially as though it was first received by the hypothetical domestic_corporation and then redistributed to the individual taxpayer boris i bittker lawrence lokken federal taxation of income estates and gifts para pincite 3d ed in essence petitioners urge that what sec_962 pretends to have occurred actually happened by virtue of their sec_962 elections petitioners contend that memcorp hk’s e_p moved up to a notional domestic c_corporation which later paid the dollar_figure dividend as a domestic_corporation consistently with the terms of sec_1 we discern no support for this theory in the statute the legislative_history the regulations or judicial precedent we begin our inquiry as we must by considering the plain and ordinary meaning of the text congress enacted see eg 555_us_113 844_f3d_832 9th cir c ourts must presume that a legislature says in a statute what it means and means in a statute what it says there 503_us_249 when the words of a statute are unambiguous ‘judicial inquiry is complete ’ id pincite quoting 449_us_424 statutory text is ambiguous where the ordinary and common meaning of the statutory language supports more than one interpreta- tion 116_tc_87 where statutory language is ambiguous we may consult legislative_history to assist us in interpreting the language in question ibid we do not find any of the relevant statutory texts to be ambiguous sec_1 defines qdi as dividends received from a domestic corpora- tion or a qualified_foreign_corporation petitioners’ dollar_figure dividend was re- ceived from memcorp hk a corporation is a domestic_corporation only if it is organized in the united_states or under u s or state law sec_7701 be- cause memcorp hk was organized under the law of hong kong and because hong kong does not have an income_tax treaty with the united_states memcorp hk was neither a domestic_corporation nor a qualified_foreign_corporation nor do we find any ambiguity in the text of sec_962 in the case of an electing u s shareholder sec_962 provides that the tax imposed on the sec_951 inclusions shall be an amount equal to the tax which would be imposed if such amounts were received by a domestic_corporation sec- tion a enables the electing shareholder to claim deemed-paid ftcs by pro- viding that the inclusions shall be treated as if they were received by a domestic_corporation these provisions do not create hypothetical corporations or change real-world facts they simply provide a mechanism that enables an individual u s taxpayer to elect what he or she may deem more desirable tax treatment both clauses quoted above are drafted in the subjunctive mood clauses of this type are commonly used to express a counterfactual hypothesis klein v commissioner t c __ __ slip op pincite date for example as- sume a statute providing that certain persons green card holders perhaps shall be treated as if they were citizens in such a statute congress would necessarily presume that such persons were not in fact citizens providing merely that they should be accorded the treatment which citizens receive see id at __ slip op pincite the same logic applies here in drafting sec_962 congress adopted the counterfactual hypothesis that the sec_951 inclusions were received by a domestic_corporation rather than by the individual u s shareholder for the sole and limited purpose of enabling that person to elect beneficial tax treatment under sec_962 there is nothing in the statutory text to suggest that congress intended this counterfactual hypothesis to apply for any other purpose under the code least of all for purposes of sec_1 which was not enacted until years later finally we discern no ambiguity in the text of sec_962 it provides that the previously taxed e_p of a foreign_corporation shall when such 5petitioners err in citing sec_1_962-1 income_tax regs and two irs field service advices fsas for the proposition that sec_962 estab- lishes a fictional u s_corporation the regulation implements sec_962 by providing that for deemed-paid ftc purposes the term ‘domestic corpora- tion’ shall be treated as referring to the electing u s shareholder the fsas implement sec_962 which refers to the corporate tax which would be imposed under sec_11 and sec_55 by adopting the same counterfactual hypo- thesis for calculating the corporate alternative_minimum_tax see fsas and date none of these authorities suggests that this counterfactual hypothesis has any operation outside the confines of sec_962 earnings_and_profits are distributed be taxed to the u s shareholder in a speci- fied way there is no reference in this provision to any corporation other than the cfc whose e_p is being distributed the e_p to which the statute refers is the foreign corporation’s e_p there is no suggestion that this e_p has previously moved up to a notional domestic_corporation petitioners seek to inject ambiguity into the statute by positing that the e_p must move up in order to maintain parity between individual u s shareholders who invest in cfcs directly and those who invest in cfcs through domestic cor- porations the parity for which petitioners argue may or may not represent desir- able tax policy there is simply no textual evidence that congress enacted peti- tioners’ policy preference in the code provisions we are considering 6petitioners assert that their dividend had to come from e_p located somewhere that this e_p had to leave memcorp hk when the amounts were included by the deemed c_corporation and that the e_p at the time of the dividend could not have been located anywhere other than with the deemed u s c_corporation in making these assertions petitioners are assuming what they are trying to prove contrary to their view the regulations tell us where the e_p were located--namely in memcorp hk which at the time of the distribution had excludable e_p of dollar_figure and taxable e_p of dollar_figure see sec_1_962-3 income_tax regs 7the regulations which closely track the statute support a plain language interpretation of its terms like the statute they clearly refer to the e_p of the cfc and to a distribution by the cfc not by a deemed domestic entity see sec_1_962-3 income_tax regs even if sec_962 were thought ambiguous the legislative_history does not provide meaningful assistance to petitioners sec_962 was added to the code as part of the original subpart_f regime revenue act of pub_l_no sec_12 sec_76 stat pincite at that time individuals were taxed at marginal rates as high a sec_91 the senate_finance_committee explained that the purpose of sec_962 was to avoid what might otherwise be a hardship in taxing a u s indi- vidual at high bracket rates with respect to earnings in a foreign cor- poration which he does not receive this provision gives such indi- viduals assurance that their tax burdens with respect to these undis- tributed foreign earnings will be no heavier than they would have been had they invested in an american corporation doing business abroad s rept no pincite 1962_3_cb_703 the tax parity about which congress expressed concern involved tax bur- dens with respect to these undistributed_foreign_earnings ibid emphasis add- ed under subpart_f u s shareholders were going to be taxed currently under sec_951 even though they received no cash from the cfc that being so congress believed it might be harsh to tax them on deemed distributions at high bracket individual rates and so made available upon election lower bracket corporate rates 8see thomas l hungerford cong research serv rl33786 individual tax_rates and tax burdens changes since at crs-6 the highest statutory marginal tax_rate wa sec_91 in the early 1960s congress obviously knew that individual income_tax rates might change in the future when enacting sec_962 it stated its understanding that taxable e_p when actually distributed by the cfc would be treated as a dividend and be taxed at individual income_tax rates s rept no pincite c b pincite congress in expressed no concern--one way or the other--about the terms on which future taxation of such dividends would occur sec_962 entered the code years before sec_1 and con- gress in could not have expressed any intention about how these two provi- sions would interact petitioners in essence argue that a foreign_corporation which is not a qualified_foreign_corporation under sec_1 should be deemed a domestic_corporation under sec_1 in any case in which a u s shareholder has previously made a sec_962 election congress did not express any intention to that effect when enacting sec_1 in and even if it had done so it did not embody that intent in the text of the statute w here congress knows how to say something but chooses not to its si- lence is controlling 245_f3d_1217 11th cir citing 206_f3d_1389 11th cir t he fact that congress might have acted with greater clarity or foresight does not give courts a carte blanche to redraft statutes in an effort to achieve that which congress is perceived to have failed to do 471_us_84 petitioners invite us to rewrite sec_1 or sec_962 in a way that fills what they perceive as a statutory gap we decline this invitation it is not our role to soften the clear import of congress’ chosen words even if we think those words produce a harsh result locke u s pincite in sum we hold that memcorp hk’s distribution of dollar_figure of taxable e_p to petitioners was not qdi under sec_1 but rather consti- tuted an ordinary dividend taxable at ordinary-income rates when filing their amended returns for and petitioners made voluntary irrevocable elections under sec_962 see 61_tc_719 sec_1_962-2 income_tax regs by making these elections peti- tioners got what they bargained for immediate deemed-paid ftcs and a lower current tax_rate on the sec_951 inclusions by requiring petitioners to forfeit in large part the benefits of sec_959 these elections may ultimately cause them to include more gross_income than they would otherwise have had to include unfortunately that is sometimes how the cookie crumbles b distribution from hopper cyprus the second question like the first involves the application of sec_1 in date hopper cyprus paid to hopper us what petitioners con- cede was a taxable dividend of dollar_figure the dispute again concerns the pro- per characterization of this dividend petitioners contend that hopper cyprus was a qualified_foreign_corporation see sec_1 so that the dividend constituted qdi subject_to tax at the preferential rates made available by sec_1 respondent disputes this proposition contending that the dividend was taxable as ordinary_income as relevant here a qualified_foreign_corporation is a corporation eligible for benefits of a comprehensive_income_tax_treaty with the united_states which the secretary determines is satisfactory for purposes of this paragraph and which includes an exchange of information program sec_1 in the irs published a list of income_tax treaties that satisfied the statutory require- ments see notice_2006_101 2006_2_cb_930 amplified by notice_2011_64 2011_37_irb_231 sec_2 of notice_2006_101 states i n order to be treated as a qualified_foreign_corporation under the treaty test a foreign_corporation must be eligible for benefits of one of the u s income_tax treaties listed in the appendix accordingly the foreign_corporation must be a resident within the meaning of such term under the relevant treaty and must satisfy any other requirements of that treaty including the requirements under any applicable limita- tion on benefits provision the appendix to notice_2006_101 supra lists cyprus as a country that has an acceptable income_tax treaty with the united_states article of the treaty provides that the term resident of cyprus means among other things a cypriot corporation article defines the term cy- priot corporation as an entity other than a united_states_corporation treated as a body corporate for tax purposes under the laws of cyprus which is resident in cyprus for the purpose of cypriot tax article sets forth limitation-on-benefits lob provisions for residents of the united_states and cyprus under the treaty under article a corporation resident in cyprus is entitled to benefits under the treaty if among other things percent of its shares are owned directly or indirectly by individual residents of cyprus because petitioners who are u s residents indirectly own of hopper cyprus they concede that hopper cyprus is not entitled to treaty benefits under article if the terms of article are not met a company may still satisfy the lob requirements if it meets the terms of article it provides that treaty benefits will not be denied if it is determined that the establishment acquisition and maintenance of such person and the conduct of its operations did not have as a principal purpose obtaining benefits under the treaty under the legal framework set forth above hopper cyprus must satisfy two separate tests to be treated as a qualified_foreign_corporation during it must have been a resident of cyprus under the treaty and if it was a resident of cyprus its establishment and operation must not have had as a principal pur- pose the obtaining of benefits under the treaty concluding as we do that there exist genuine disputes of material fact as to whether hopper cyprus satisfied the first test we need not at this stage of the case address the second test in support of their position as to residency petitioners provided declarations from mario tofaros a director of hopper cyprus attaching certificates issued by the ministry stating that hopper cyprus during was a cypriot resident under the treaty certain facts concerning the issuance of these certificates were established pursuant to article of the treaty through an exchange of informa- tion between the u s and cypriot competent_authorities see supra pp these facts include the following at a time not disclosed by the record hopper cyprus was stricken from the cypriot registry of companies for failure_to_file tax returns and submit annual reports to the cypriot registrar of companies registrar for reasons not disclosed by the record hopper cyprus was reinstated in the cypriot registry of companies on date eight days later on date hopper cyprus filed cypriot tax re- turns for and the returns for and were not signed one day later on date mr tofaros submitted to the ministry form t d tax residency certificate request and questionnaire for legal en- tities on this form he checked the box marked yes to each of the following questions is the company incorporated in cyprus do the majority of the board_of directors meetings take place in cyprus does the board_of directors exercise control and make key management and commercial decisions necessary for the company’s operations and general policies are board_of directors’ minutes prepared and kept in cyprus is the majority of the board_of directors tax residents sic in cyprus and do shareholders’ meetings take place in cyprus mr tofaros attached to the form t d a certificate issued by the registrar on date stating that the other two directors of hopper cyprus were petitioner husband and briantserve ltd and a letter from mr tofaros to the ministry dated date stating that the management and control of hop- per cyprus were exercised in cyprus he represented that hopper cyprus’ books_and_records were maintained in cyprus and that all of its cypriot tax returns had been duly filed he supplied no documentary_evidence to establish that board meetings took place in cyprus or to show that management and control of hopper cyprus were exercised in cyprus five days later on date after allegedly verifying that hopper cyprus had complied with its cypriot tax_return filing obligations the ministry issued the four residency certificates in question each certificate consisted of two sentences and stated that hopper cyprus for and is a resident of cyprus within the meaning of the double_taxation convention between the republic of cyprus and the united_states of america each certificate bears a stamp with the name of the certifying official according to petitioners these certificates establish that hopper cyprus for treaty purposes was a resident of cyprus at all relevant times under the act of state doctrine petitioners contend the determination set forth in the certificates is binding on this court and cannot be disturbed respondent contends that petition- ers are not entitled to summary_judgment on this point because they have not sup- plied at this stage of the proceeding sufficient evidence to show that the act of state doctrine applies or that management and control of hopper cyprus were exercised in cyprus we agree with respondent the act of state doctrine in its traditional formulation precludes the courts of this country from inquiring into the validity of the public acts a recognized for- eign sovereign power committed within its own territory 376_us_398 in sabbatino the supreme court ad- dressed a foreign sovereign’s expropriation of property indirectly owned by u s residents although that act appeared to violate customary international law the court held t he judicial branch will not examine the validity of a taking of pro- perty within its own territory by a foreign sovereign government extant and recognized by this country at the time of suit in the ab- sence of a treaty or other unambiguous agreement regarding control- ling legal principles id pincite the act of state doctrine does not deprive a court of jurisdiction rather it functions as a doctrine_of abstention 163_f3d_1363 n d c cir rev’g and remanding 107_tc_301 the doctrine is typically invoked when a litigant claims to have been damaged by official action of a foreign government or its officials see eg sabbatino u s pincite expropriation of property 246_us_304 same 168_us_250 detention of a person by foreign official 130_f3d_1342 9th cir asset freeze orders in such circumstances judicial reexamination of the legality of a foreign sovereign’s acts may imperil the amicable relations between governments and vex the peace of nations 246_us_297 the act of state doctrine reflects ‘the strong sense of the judicial branch that its engagement in the task of passing on the validity of foreign acts of state may hinder’ the conduct of foreign affairs 493_us_400 quoting sabbatino u s pincite as chief justice fuller explained in underhill u s pincite t he courts of one country will not sit in judgment on the acts of the government of another done within its own territory redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves at the outset respondent urges with considerable force that the act of state doctrine has no application here given the existence of a bilateral income_tax treaty between the united_states and cyprus the supreme court ruled in sabbatino that the act of state doctrine applies in the absence of a treaty or other unambiguous agreement regarding controlling legal principles u s pincite emphasis add- ed when two sovereigns have executed a treaty that embodies agreed-upon prin- ciples for resolving controversies a court’s application of those principles is less likely to upset sensitive diplomatic relations courts that have addressed this question agree that the act of state doctrine does not apply where a treaty or other binding agreement provides a controlling legal standard for a court to apply see eg 822_f2d_230 2d cir 729_f2d_422 6th cir foremost mckesson inc v islamic republic of iran civ a no wl at d d c date here article sec_2 and of the treaty provide specific rules that govern hop- per cyprus’ residency for tax purposes article a i provides that the term resident of cyprus includes a cypriot corporation article e ii provides that the term cypriot corporation means an entity other than a united_states_corporation treated as a body corporate for tax purposes under the laws of cyprus which is resident in cyprus for the purpose of cypriot tax the cypriot income_tax law provides that the term resident when applied to a company means a company whose management and control is exercised in cyprus during the exchange of information process the cypriot competent_authority informed the department of the treasury that cyprus interprets management and control to mean the effective management of the company viewed together these provisions supply a controlling legal standard for determining hopper cyprus’ residency status under the treaty a corporation will be treated as a resident of cyprus if the effective management of the company is exercised in cyprus there is no uncertainty about cypriot law on this point because the cypriot competent_authority specifically informed the u s competent_authority about the legal standard it applies and even if there were some uncertainty about cypriot law this court’s determination of an issue of for- eign law shall be treated as a ruling on a question of law rule both parties to the treaty presumably understood that the courts of each na- tion would apply the treaty’s residency rules to the facts of particular cases as they arose petitioners seek to limit the sabbatino treaty exception to situations where the foreign sovereign’s actions are contrary to a clearly enunciated standard set forth in a treaty but the case law supplies no support for this limitation as the supreme court stated in sabbatino u s pincite the question is simply wheth- er a treaty or other unambiguous agreement regarding controlling legal princi- ples exists given the existence of the treaty and the absence of any dispute as to the legal principles that control the residency issue the act of state doctrine would appear to be inapplicable here assuming arguendo that the act of state doctrine might apply it counsels a u s court against deciding a case when the outcome turns upon the legality or illegality of official action by a foreign sovereign performed within its own territory riggs nat’l corp subs f 3d pincite the party invoking the doctrine bears the burden of establishing the act and its character as an act of state grupo protexa s a v all am marine slip a div of marine office of am corp 20_f3d_1224 3d cir 806_f2d_344 2d cir restatement foreign relations law 3d sec_443 cmt i reporter’s note the application of the act of state doctrine depends on the likely impact on international relations that would result from judicial consideration of the foreign sovereign’s act grupo protexa s a f 3d pincite quoting 757_f2d_516 2d cir the reviewing court must determine on a case-by-case basis the extent to which in the context of a particular dispute separation of powers concerns are implicat- ed ie whether there is evidence of a potential institutional conflict between the judicial and political branches of the u s government id pincite at a mini- mum the party invoking the doctrine must show that the foreign sovereign acted in its sovereign capacity and establish a demonstrable not a speculative threat to the conduct of foreign relations by the political branches of this country id pincite8 first quoting 892_f2d_1419 9th cir and then quoting 847_f2d_1052 3d cir aff’d 493_us_400 t he less important the impli- cations of an issue are for our foreign relations the weaker is the justification for invoking the act of state doctrine to require judicial abstention id pincite quoting allied bank int’l f 2d pincite for several reasons we find that petitioners have not satisfied their burden to show that the act of state doctrine applies to begin with we question whether the issuance of the residency certificates rises to the level of an act of state the certificates were issued five days after the application was filed the application consisted of unsubstantiated representations by a hopper cyprus director who checked yes boxes on the application form apart from confirming the filing of tax returns--hopper cyprus’ returns for were submitted the day before the application they were at least four years late and two of them were unsigned-- there is no evidence that the ministry verified any of the applicant’s factual representations the act of state doctrine ‘does not bestow a blank-check immunity upon all conduct blessed with some imprimatur of a foreign government ’ 456_f3d_363 3d cir quoting timber- lane lumber co v bank of am 549_f2d_597 9th cir the courts have held for example that the act of state doctrine does not apply to a foreign government’s grant of a patent 595_f2d_1287 3d cir cf 694_f2d_300 3d cir declining to apply act of state doctrine to foreign govern- ment’s refusal to purchase aircraft parts from a particular supplier 516_fsupp_1210 s d n y on the facts here the issuance of the residency certificates appears to have been a clerical act analogous to and arguably less substantive than the grant of a patent petitioners have failed to show that this action rises to the level of an act of state 9petitioners allege that irs when issuing a form_6166 certification of u s tax residency follows a process similar to that followed by cyprus we do not see the logic of this argument the question we are deciding is whether cyprus performed an official act of state in certifying hopper cyprus’ residency whether the irs follows a similar process for taxpayers who seek certification of residency does not bear on this question nor have petitioners shown that failure to give binding effect to the residen- cy certificates would pose a demonstrable not a speculative threat to the conduct of foreign relations by the political branches of the united_states government grupo protexa s a f 3d pincite as far as the record reveals the clerk who issued the residency certificates was discharging a routine task petitioners have supplied no evidence that this act reflected a considered policy determination by the cypriot government to give effect to its political and public interests in matters that would have a significant impact on american foreign relations mannington mills inc f 2d pincite refusing to apply act of state doctrine to foreign government’s grant of patent rights because judicial review posed no threat to diplomatic relations dollar_figure in assessing the effect of the certificates moreover we are not ruling on the legality or illegality of official action by a foreign sovereign see 10petitioners view the supreme court’s opinion in w s kirkpatrick co as suggesting that diplomatic concerns need not be implicated in order for the act of state doctrine to apply petitioners’ view is incorrect the supreme court in that case rejected the doctrine’s application because the validity of no foreign sovereign act wa s at issue u s pincite the court reached that conclusion even though the litigation might have affected u s foreign policy by embarrassing a foreign government see id pincite the court simply held that the presence of diplomatic concerns in and of itself is not sufficient to require application of the act of state doctrine the court did not hold that the doctrine applies even where such concerns are absent indeed because the court rejected the doctrine’s application it could not possibly have made any such holding riggs nat’l corp subs f 3d pincite nor are we inquiring into the validity of the public acts of a foreign government see sabbatino u s pincite there is no dispute concerning the legal standard that governs whether hopper cyprus was a cypriot resident under the treaty see supra pp the certificates reflect the ministry’s opinion as to how that standard applies to the particular set of facts involved here in declining to give that opinion dispositive effect for u s tax purposes we are not questioning the validity or legality of the ministry’s action in urging that the act of state doctrine applies here petitioners rely chiefly on the opinion of the u s court_of_appeals for the d c circuit in riggs nat’l corp there the taxpayer’s subsidiary a u s bank had made loans to the central bank of brazil as part of an international effort to prevent brazil from defaulting on its sovereign debt see riggs nat’l corp subs f 3d pincite4 these loans were structured as net loans whereby the central bank paid brazilian tax on the interest and remitted the interest on a net_basis to the taxpayer ibid the taxpayer claimed an ftc for the brazilian taxes thus paid taking the position that it bore the economic cost of the brazilian tax the central bank had paid on its behalf the irs disallowed the claimed credit determining that the brazilian tax_payments were voluntary see sec_901 sec_1_901-2 income_tax regs that was assertedly so because the central bank as a compo- nent of the brazilian government was a tax-immune borrower that had no obli- gation to pay brazilian tax see riggs nat’l corp subs f 3d pincite the dispute in riggs nat’l corp focused on the effect of a ruling by the brazilian minister of finance the highest ranking brazilian authority on tax matters id pincite that ruling concluded that the central bank--notwith- standing its tax-immune status--was required under brazilian law to pay the tax obligation assumed from lenders on the net loan transactions ibid the taxpayer contended that the act of state doctrine required u s courts to give effect to this ruling thus establishing that the brazilian tax had not been paid voluntarily the commissioner urged on appeal that a foreign administrative official’s interpretation of foreign law is not the type of act of state contemplated by the doctrine id pincite the d c circuit acknowledged that the act of state doc- trine has typically been applied where a party alleged injury from some tangible act of a foreign sovereign such as an expropriation of assets a physical detention or an asset freeze order see id pincite8 the court indicated that it was unaware of cases treating an interpretation of law as an act of state id pincite and it said that it would be hesitant to treat an interpretation of law as an act of state for such a view might be in tension with rules of procedure directing u s courts to conduct a de novo review when an issue of foreign law is raised ibid citing rule and fed r civ p as its basis for holding that the act of state doctrine nevertheless applied the d c circuit determined that the minister’s order to the central bank to with- hold and pay the income_tax goes beyond a mere interpretation of law id pincite the finance minister had explicitly ordered that the central bank ‘must pay the income_tax on the interest ’ ibid quoting riggs nat’l corp subs t c pincite the court analogized the finance minister’s order to asset freeze and currency control orders which the courts had previously treated as acts of state see ibid any other conclusion the court_of_appeals ruled would effectively declare ‘non-compulsory ’ ie invalid the minister’s order to the central bank to pay the taxes ibid the act of state doctrine the court concluded requires courts to abstain from even engaging in such an inquiry ibid for at least two reasons petitioners’ reliance on riggs nat’l corp is mis- placed first the d c circuit applied the act of state doctrine because it con- cluded that the finance minister’s ruling was not a mere interpretation of law but rather was a binding order that compelled action by the central bank a compo- nent of the brazilian government in issuing the residency certificates by con- trast the cypriot ministry was simply offering an interpretation of law expressing its view as to how the treaty’s residency provisions apply to a particular set of facts the certificates are purely retrospective relating as they do to hopper cy- prus’ tax years the ministry issued no order to any entity govern- mental or otherwise and the certificates have no binding prospective effect on anyone second the d c circuit applied the act of state doctrine because it conclud- ed that failing to do so would effectively declare the finance minister’s order in- valid riggs nat’l corp subs f 3d pincite in assessing the effect of the residency certificates by contrast we are not ruling on the legality or illegality of official action by a foreign sovereign see id pincite we do not question the validity of the certificates or whether they were properly issued in accordance with the ministry’s procedures because we are not second-guessing the legality of the ministry’s action the validity of no foreign sovereign act is at issue in this case see w s kirkpatrick co u s pincite in considering petitioners’ motion for partial summary_judgment on this question we must view all facts and inferences drawn from them in the light most favorable to respondent the nonmoving party see dahlstrom t c pincite applying that standard we conclude that petitioners are not entitled to summary_judgment on the question whether hopper cyprus during was a qualified_foreign_corporation within the meaning of sec_1 the answer to that question depends in part on whether hopper cyprus was a resident of cyprus under the treaty the residency certificates issued by the ministry are relevant to that inquiry to the extent those certificates are based on sound reasoning and accurate factual representations they will be accorded at the least appropriate weight but viewing all facts and inferences in the light most favorable to respondent we hold that petitioners have not established that the act of state doctrine applies here such that we are required at this stage of the case to accord those certificates dispositive effect c constructive_dividend the third issue is whether petitioners must include in gross_income for a constructive_dividend of dollar_figure from hopper cyprus beginning as early as memcorp hk held an open account receivable from hopper us on which hopper us was indisputably liable the balance of this account reached its zenith in when it stood at dollar_figure and declined thereafter when memcorp hk reorganized itself to cyprus hopper cyprus became the obligee on this ac- count receivable on date when the account had an outstanding bal- ance of dollar_figure hopper cyprus wrote off the entire balance reducing the in- debtedness of hopper us to zero invoking sec_301 and sec_316 respond- ent contends that petitioners in consequence received a constructive_dividend of dollar_figure a dividend may be formally declared or it may be constructive see boul- ware u s pincite truesdell t c pincite a constructive_dividend is an economic benefit conferred upon a shareholder by a corporation without an ex- pectation of repayment truesdell t c pincite citing noble f 2d pincite when a corporation cancels its shareholder’s debt without consideration the cancellation is generally treated as a distribution to the shareholder which will constitute a dividend to the extent of the corporation’s e_p see sec_61 sec_301 c 284_us_1 340_f2d_27 6th cir aff’g tcmemo_1963_294 52_tc_255 aff’d 422_f2d_198 5th cir sec_1_301-1 income_tax regs the cancellation of indebtedness of a shareholder by a corporation shall be treated as a distribution_of_property these rules apply to distributions from both domestic and foreign_corporations the notions of constructive_dividend and cancellation of indebtedness merge in this setting midwest stainless inc v commissioner tcmemo_2000_314 80_tcm_472 a constructive_dividend involves the conferring of an economic benefit without expectation of repayment and the cancellation confers upon the shareholder a definite economic benefit when it becomes clear that the debt will not have to be repaid ibid citing waterhouse v commissioner tcmemo_1994_467 and then citing 88_tc_435 citing these principles respondent contends that hopper cyprus’ cancella- tion of the dollar_figure debt constituted a constructive distribution through hop- per us to petitioners he further argues that this distribution was taxable under sec_301 as a dividend to the extent that hopper cyprus had sufficient e_p petitioners do not dispute that hopper cyprus had accumulated e_p in excess of dollar_figure in and they do not contend that these e_p were previously included in their gross_income in reply petitioners advance what seems to be a statute_of_limitations argu- ment blended with a double-taxation argument both arguments have their roots in the irs’ examination of petitioners’ and returns during that exami- nation the irs determined that memcorp hk’s account receivable constituted an investment in u s property within the meaning of sec_956 and c c the irs accordingly made adjustments that required petitioners to include in gross_income for and dollar_figure and dollar_figure respectivelydollar_figure peti- tioners acquiesced in these adjustments and made sec_962 elections as de- scribed above see supra pp noting that memcorp hk’s account receivable balance peaked at dollar_figure mil- lion in petitioners contend that their cfcs made no additional investments in u s property after that year according to petitioners therefore the irs was obligated to make any sec_956 inclusions when it examined their returns for and because the period of limitations for and has now lapsed see sec_6501 petitioners assert that the irs cannot make any more sec_956 inclusions now and cannot pursue an alternative theory--ie its con- structive dividend theory--to tax them when the debt was canceled in petitioners note that memcorp hk’s account receivable triggered construc- tive income inclusions to them in and whereby the irs treated e_p corresponding to a portion of that account as an investment in u s property 11respondent represents that he erroneously computed and substantially understated petitioners’ gross_income inclusions for and by applying an earlier version of sec_956 that existed before its amendment in see infra p for purposes of our present inquiry the amount of previous sec_951 inclusions is not relevant except to the extent that these inclusions gave rise to previously taxed e_p under sec_959 sec_959 does not allow petitioners to exclude from gross_income amounts that could have been but were not in fact previously included in gross_income under sec_956 and sec_951 from that premise petitioners conclude that the irs is subjecting them to double_taxation by treating as gross_income the cancellation of the remaining debt petitioners’ theory appears to be that the entire account receivable balance was constructively distributed to them in and and that this debt cannot give rise to another constructive distribution in petitioners’ argument misses the mark for several reasons their critical error is their assumption that the irs was required to make any and all sec_956 inclusions for and the years for which the irs evidently first discovered that memcorp hk had made an investment in u s property there is no support for that assumption in the code the regulations or judicial precedent congress provided that the sec_956 inclusion for any taxable_year shall be determined by measuring the average amount of u s property held by a cfc as of the close of each quarter of such taxable_year sec_956 flush language id para a the statute does not require that the inclusion be made for the first year in which the cfc acquires its investment or that the inclusion be made for any particular year see crestek inc subs v commissioner t c __ __ slip op pincite date to the contrary the statute defines the inclusion for any particular year by reference to the amounts of united_states_property held directly or indirectly by the controlled_foreign_corporation during that year sec_956 emphasis added thus where a cfc holds an item of u s property for multiple years--as memcorp hk and hopper cyprus did-- sec_956 permits an inclusion in income for any one of those years crestek inc subs t c at __ slip op pincite the only relevant limitation is that a sec_956 inclusion cannot be made more than once for any particular investment by a cfc in united_states_property ibid congress accomplished this limitation by providing that any inclusion under sec_956 must be reduced by previously_taxed_income pti under sec_959 petitioners have stipulated that the pti limitation does not apply here because no portion of the e_p attributable to the dollar_figure debt cancel- lation was previously included in their gross_income under subpart_f petitioners likewise err in contending that the irs can make a sec_956 adjustment only for a year in which the cfc’s investment in u s property in- creases using a year-by-year approach for this proposition they cite mcculloch corp v commissioner tcmemo_1984_422 48_tcm_802 but the court there was applying an earlier version of sec_956 which was in effect before congress amended the statute to its current form in see omnibus_budget_reconciliation_act_of_1993 pub_l_no sec a stat pincite as in effect before former sec_956 determined the u s shareholder’s sec_951 inclusion by reference to the increase of a cfc’s earnings invested in u s property for the tax years at issue here sec_956 determined that inclusion as noted above by reference to the amount of u s property held by the cfc to the extent it exceeds pti in short the irs was not required to make any and all sec_956 in- clusions relating to memcorp hk’s investment in u s property during its exami- nation of petitioners’ and tax years that being so petitioners’ statute_of_limitations argument collapses the fact that the period of limitations has ex- pired for and has no relevance in determining whether they received a constructive_dividend when hopper cyprus canceled their indebtedness in despite the sec_956 inclusions for and memcorp hk con- tinued to hold a very large debt obligation from hopper us and that debt obliga- tion remained at all times an investment in u s property the irs was free to make additional sec_956 adjustments for later years to the extent permitted by the statute and when hopper cyprus canceled that debt on date the irs was free to treat petitioners as having received a constructive distribution of dollar_figure the balance of the account on that date respondent has acknowledged that for and he understated peti- tioners’ sec_956 inclusions attributable to memcorp hk’s investment in u s property see supra p n petitioners repeatedly contend that the irs having allegedly failed to tax them properly in and should not be given a second bite at the apple when hopper cyprus canceled the debt in once again the results of the and examination are irrelevant here petition- ers concede that hopper cyprus had accumulated e_p in excess of dollar_figure when it canceled the debt and petitioners have admitted that the e_p attribut- able to this writeoff which were not previously included in hopper us’ gross_income under sec_951 constitute previously untaxed e_p under sec_959 absent any override by sec_959 the writeoff is properly treated as a constructive_dividend to hopper us as would be the case if this were an entirely domestic arrangement petitioners likewise err in asserting that the irs has taken a fundamentally inconsistent_position by determining a constructive_dividend for the sec_956 inclusions for and and the debt_cancellation in are separate taxable events each with its own prescribed tax treatment by virtue of the and inclusions petitioners were taxed on dollar_figure of e_p that memcorp hk had accumulated by that time by virtue of hopper cyprus’ cancel- lation of the account receivable in petitioners realized a dollar_figure acces- sion to wealth that accession to wealth was taxable to petitioners as a construc- tive dividend because hopper cyprus in had accumulated e_p in excess of dollar_figure no portion of which had previously been included in petitioners’ gross_income finally there is no legal basis for petitioners’ assertion that memcorp hk’s account receivable balance was constructively distributed to them in its entirety when dollar_figure was included in their gross_income for and peti- tioners cite various authorities for the proposition that income constructively re- ceived in year cannot be taxed again when actually received in year but while that proposition is generally correct the premise for petitioners’ argument is not to begin with the prior sec_956 inclusions were not constructive distri- butions see sih partners lllp v commissioner t c __ __ slip op pincite date holding that inclusions under sec_956 for guaranties by cfcs do not constitute dividends 137_tc_174 aff’d 722_f3d_306 5th cir in any event there is no legal basis for petitioners’ assertion that the entire account receivable balance was construc- tively distributed to them in and when e_p corresponding to a portion of it ie dollar_figure was included in their gross_income for these reasons we conclude that petitioners in received from hop- per cyprus a constructive distribution of dollar_figure and that this distribution was taxable to them in full as a dividend under sec_301 and sec_316 we will therefore grant respondent’s cross-motion for partial summary_judgment on this pointdollar_figure to implement the foregoing an order will be issued granting respondent’s motion for partial summary_judgment denying petitioners’ cross- motion for partial summary_judgment and denying petitioners’ motion for partial summary_judgment 12in his cross-motion for partial summary_judgment respondent contends that this constructive_dividend does not constitute qdi taxable at preferential rates under sec_1 that depends on whether constructive dividends can con- stitute qualified_dividend_income under sec_1 and on whether hopper cyprus during was a qualified_foreign_corporation under sec_1 the parties have not addressed the first point and as noted above we find that petitioner is not entitled to summary_judgment on the second see supra pp we accordingly leave resolution of these questions to further proceedings cf luczaj assocs v commissioner tcmemo_2017_42 113_tcm_1187 n