John B. Young and Martha H. Young - Page 1

                                   113 T.C. No. 11                                    

                               UNITED STATES TAX COURT                                

                  JOHN B. YOUNG AND MARTHA H. YOUNG, Petitioners v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

                    LOUISE F. YOUNG, f.k.a. LOUISE Y. AUSMAN, AND                     
                           JAMES R. AUSMAN, Petitioners v.                            
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket Nos. 20435-97, 21489-97.      Filed August 20, 1999.            
                    Ps, H and W, were divorced in 1988.  Pursuant to                  
               their 1989 property settlement, H transferred to W his                 
               promissory note for $1,500,000.  After H defaulted on                  
               the note, a State court entered judgment in favor of W.                
               In 1992, as part of a settlement agreement relating to                 
               the judgment, H transferred property to W in exchange                  
               for the promissory note.  The transfer satisfied the                   
               principal, accrued interest, and legal and collection                  
               expenses due pursuant to the terms of the promissory                   
                    1.   Held:  Sec. 1041 applies to the 1992 transfer                
               of property, from H to W, that resolved a dispute that                 
               arose from their property settlement.                                  
                    2.   Held, further, W's 1992 gross income includes                
               $308,906 relating to the value of property transferred                 
               to her to discharge certain debts.                                     

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