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until November 17, 1989, she received draw payments from Woodbine
at $1,000 per week and total payments of $53,844, and Howard
Berger received only $2,239 on account of personal expenses that
had previously accrued. Under our approach, Alice Berger's 1989
Woodbine taxable income exceeds Howard Berger's 1989 taxable
income by approximately $50,000, the amount by which Alice
Berger's draw payments and withdrawals made after March 14, 1989,
exceeded the payments to Howard Berger during the same period:
Woodbine 1989
Taxable Income
1. Total taxable income $383,133
2. Alice Berger -216,283
3. Howard Berger 166,895
4. 2 minus 3 49,431
Issue 5(a). Whether Alice Berger or Howard Berger Is Required to
Recognize Gain From the Sale of Woodbine in 1989
It appears to be undisputed by the parties that the sale
transactions of November 17, 1989, should be treated as a direct
sale of Woodbine to the Kunkowskis in exchange for their
installment note to Alice Berger.
Alice Berger argues that section 1041 does not apply because
the sale to the Kunkowskis was a transfer to third parties on
behalf of a spouse and thus falls under section 1.1041-1T, Q&A-9,
Temporary Income Tax Regs., 49 Fed. Reg. 34453 (Aug. 31, 1984).
For this conclusion, she largely relies on Arnes v. United
States, 981 F.2d 456 (9th Cir. 1992). However, this Court
concluded in Blatt v. Commissioner, 102 T.C. 77, 82 (1994), that
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