- 34 -
the transfer that must be analyzed under Q&A-9 in the present
cases (and in any case involving a corporate redemption in a
divorce setting) in order to determine whether the on-behalf-of
standard in Q&A-9 is satisfied and whether the stockholder whose
stock is being redeemed (here Ms. Read, the transferring spouse)
is not required to recognize gain or loss under section 1041 is
the transfer by that transferring spouse of the stock being
redeemed (property) to the redeeming corporation (here MMP, a
third party). Only if that transfer is made on behalf of the
spouse whose stock is not being redeemed (here Mr. Read, the
nontransferring spouse) does the transfer of property (here MMP
stock) by the transferring spouse (here Ms. Read) to a third
party (here MMP) satisfy the on-behalf-of standard in Q&A-9.
The judicially created primary-and-unconditional-obligation
standard is well established in the tax law. If in issuing Q&A-9
the Treasury Department had intended that in the case of, and
solely in the case of, a corporate redemption in a divorce
setting the on-behalf-of standard may be satisfied only by
23(...continued)
whose stock is not being redeemed receives a constructive divi-
dend as a result of the redemption of the stock of another
stockholder, we disagree with that suggestion. The determination
of whether the primary-and-unconditional-obligation standard has
been satisfied is a fact-intensive inquiry, which has engendered
much litigation in which the parties have disputed whether that
standard is met as to the stockholder whose stock is not being
redeemed. Indeed, in the instant cases, the parties disagree
over whether that standard is met as to Mr. Read.
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