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be made to X, instead of to H, (2) that X, instead of
H, pay the stated amount of cash to W simultaneously
with that sale and conveyance, and (3) that X, instead
of H, issue a promissory note to W bearing 9-percent
interest for the balance of the purchase price. There-
after, pursuant to H's election under the divorce
judgment, W sold and transferred to X, instead of to H,
all of the X stock that she owned.
Sec. 1041(a), I.R.C., provides that no gain or
loss is to be recognized on a transfer of property by
an individual to a spouse or a former spouse but only
if the transfer to the former spouse is incident to the
divorce. Sec. 1.1041-1T(c), Q&A-9, Temporary Income
Tax Regs. (Q&A-9), 49 Fed. Reg. 34453 (Aug. 31, 1984),
addresses a transfer of property by a spouse (trans-
ferring spouse) to a third party on behalf of a spouse
or former spouse (nontransferring spouse). Provided
that the other requirements of that temporary regula-
tion and sec. 1041, I.R.C., are satisfied, Q&A-9 treats
such a transfer as a transfer of property by the trans-
ferring spouse directly to the nontransferring spouse
that qualifies for nonrecognition treatment under sec.
1041, I.R.C., and an immediate transfer of the property
by the nontransferring spouse to the third party in a
transaction that does not qualify for nonrecognition
treatment under sec. 1041, I.R.C.
Petitioners argue that the legal standard that
must be applied in order to determine whether W’s
transfer of her X stock to X was a transfer to a third
party on behalf of H within the meaning of Q&A-9 is the
primary-and-unconditional-obligation standard estab-
lished by constructive-dividend decisional law. How-
ever, they disagree as to whether the primary-and-
unconditional-obligation standard is satisfied as to
Mr. Read in the instant cases.
1. Held: The primary-and-unconditional-obliga-
tion standard is not an appropriate standard to apply
in order to determine whether W’s transfer of her X
stock to X was a transfer of property by W to a third
party on behalf of H within the meaning of Q&A-9.
Held, further, the primary-and-unconditional-obligation
standard is not an appropriate standard to apply in any
case involving a corporate redemption in a divorce
setting in order to determine whether the transfer of
property by the transferring spouse to a third party is
on behalf of the nontransferring spouse within the
meaning of Q&A-9.
2. Held, further, applying the common, ordinary
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