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asserts that she is not taxable on the interest income amounts
reported on the returns for the years in issue. In the notice of
deficiency, respondent determined that petitioner is taxable on
the capital gains associated with the monthly payments received
by petitioner with respect to each of the years in issue. At
trial, respondent conceded that some portion of each payment
received by petitioner represents a nontaxable return of capital.
Under this Court’s disposition of this issue, this concession is
moot. Respondent also argues that the interest income is taxable
to petitioner in each of the years in issue.
Section 1041(a) provides that no gain or loss is recognized
on a transfer of property from an individual to a spouse, or to a
former spouse if made incident to a divorce, and such transfers
are nontaxable gifts under sections 1041 and 102. Balding v.
Commissioner, 98 T.C. 368, 373 (1992). A transfer of property is
“incident to the divorce” if the transfer occurs not more than
one year after the date on which the marriage ceases or the
transfer is related to the cessation of marriage. Sec. 1041(c).
A transfer of property is related to the cessation of marriage if
the transfer is pursuant to a divorce or separation instrument,
as defined in section 71(b)(2), and the transfer occurs not more
than six years after the cessation of the marriage. Sec. 1.1041-
1T(a), Q&A-7, Temporary Income Tax Regs., 49 Fed. Reg. 34453
(Aug. 31, 1984). Section 71(b)(2) defines a divorce or
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