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the transferee) and applies for purposes of determining
loss as well as gain upon the subsequent disposition of
the property by the transferee. Thus, this rule is
different from the rule applied in section 1015(a) for
determining the basis of property acquired by gift.
[Emphasis added.]
On the basis of this regulation (and of the words of section
1041(b)), we decided in Godlewski v. Commissioner, 90 T.C. 200,
206 (1988), that a husband who bought title to their house from
his former wife for $18,000 under the terms of a divorce
agreement could not increase his basis in the house under section
1041 by the $18,000 that he paid her. Our conclusion was based
on the assumption, properly adopted in that case, that a transfer
subject to section 1041 is a nonrecognition event to both
transferor and transferee. However, section 1041(e), enacted in
1986, after section 1041 had been enacted in 1984, provides for
recognition of gain on transfers that would otherwise be
nonrecognized under section 1041(a), if (1) the transfer is in
trust and (2) liabilities assumed or encumbering the property
exceed the adjusted basis. It further provides that "Proper
adjustment shall be made under subsection (b) in the basis of the
transferee in such property to take into account gain recognized
by reason of the preceding sentence"; i.e., that the transferee's
basis is adjusted to reflect any gain recognized upon the
transfer by the transferor.
The structure of section 1041, as amended, would therefore
appear to support by analogy adjusting Alice Berger's carryover
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