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(a) GENERAL RULE.--No gain or loss shall be
recognized on a transfer of property from an individual
to * * *
(1) a spouse, or
(2) a former spouse, but only if the transfer
is incident to a divorce.
Although his transfer of stock was to a third party, Ameritech,
petitioner Praegitzer contends that it still qualifies as a
transfer under section 1041 pursuant to section 1.1041-1T(c), Q&A
9, Temporary Income Tax Regs., 49 Fed. Reg. 34453 (Aug. 31, 1984)
(Q&A 9). Q&A 9 provides:
Q-9. May transfers of property to third parties on
behalf of a spouse (or former spouse) qualify under
section 1041?
A-9. Yes. There are three situations in which a
transfer of property to a third party on behalf of a
spouse (or former spouse) will qualify under section
1041, provided all other requirements of the section
are satisfied. * * * In the three situations, * * *
the transfer of property will be treated as made
directly to the nontransferring spouse (or former
spouse) and the nontransferring spouse will be treated
as immediately transferring the property to the third
party. The deemed transfer from the nontransferring
spouse (or former spouse) to the third party is not a
transaction that qualifies for nonrecognition of gain
under section 1041.
Id.
In support of his argument, petitioner Praegitzer relies on
Arnes v. United States, 981 F.2d 456 (9th Cir. 1992). In Arnes,
Joann and John Arnes formed a corporation, “Moriah”, to operate a
McDonald's franchise. Joann and John were joint owners of 100
percent of Moriah. When the couple divorced, they were required
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