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trial, briefing and opinion. After concessions by the parties,
the remaining issues for decision are:
1. Whether the transfer of property to resolve John B. Young
and Louise F. Young's dispute that arose from their property
settlement is subject to section 1041. We hold it is.
2. Whether the value of property transferred to Louise F.
Young, to discharge certain debts, must be included in her gross
income. We hold it does.
3. Whether Louise F. Young is entitled, pursuant to section
212(1), to a deduction for legal and collection expenses
attributable to the collection of taxable income. We hold she
is.
FINDINGS OF FACT
At the time the petitions were filed, petitioners resided in
North Carolina. John B. Young and Louise F. Young were married
in 1969 and divorced in 1988. On October 9, 1989, they entered
into a Mutual Release and Acknowledgment of Settlement Agreement
(the 1989 Property Settlement), which provided for the
distribution of their marital property. On that date and
pursuant to the terms of the 1989 Property Settlement, John
delivered to Louise his promissory note for $1,500,000. The note
was secured by a deed of trust on property that John received as
part of the 1989 Property Settlement. The note provided that
John would make five annual payments, which included interest,
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