Rev. Rul. 69-124

The taxpayers, A and B, are individuals who are United States citizens and who are equal and the only partners in a domestic partnership. The partnership owned all of the stock of a foreign corporation. The corporation was a controlled foreign corporation within the meaning of section 957 of the Internal Revenue Code of 1954. Subsequently, the partnership sold its stock in the corporation which was a capital asset (within the meaning of section 1221 of the Code) held for more than six months in a transaction in which gain was recognized. By reason of section 1248(a) of the Code, the partnership (which is a United States person as defined in section 7701(a)(30) of the Code) was required to treat such gain as a dividend. A and B, under the provisions of section 702 of the Code, included in their gross incomes as a dividend their distributive shares of the gain from the sale of the stock.

Held, the tax attributable to the amounts included by A and B in their gross incomes as a dividend is subject to section 1248(b) of the Code which, in the case of individuals, provides a limitation on the amount of tax attributable to amounts included in gross income as a dividend.