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the time of the redemption.6
V. Should the Payment by MMP to Ms. Read
Be Deemed To Be Made to Mr. Read?
Section 1041 and Q&A-9 do not state that the payment from
MMP to Ms. Read is deemed to be made to Mr. Read and then to Ms.
Read.7 However, it is undisputed that, because (in my view)
section 1041(a) applies, under section 1041(b) and Q&A-9 we are
to treat Ms. Read’s stock redeemed by MMP as if it were Mr.
Read’s. A stock owner would normally have the right to receive
payment made in redemption of his or her stock. Since we are
required to treat Mr. Read as the owner of Ms. Read’s MMP stock,
it is thereby implied that we must attribute normal rights of
stock ownership to him. Thus, to give reasonable effect to
6 See Arnes I, 981 F.2d at 459, where the U.S. Court of
Appeals for the Ninth Circuit used an analysis similar to the
sec. 1041(b)-Q&A-9 described here; that is, the court treated the
transferring spouse as having constructively transferred her
stock to the nontransferring spouse, who then transferred the
stock to the corporation.
7 If section 1041 and Q&A-9 apply, the transferring spouse
recognizes no gain or loss under sec. 1041(a) on that spouse’s
actual or deemed transfer of property to the nontransferring
spouse. This is true even if the transferring spouse receives or
is deemed to receive consideration from the nontransferring
spouse for that property. See sec. 1.1041-1T(c), Q&A-10,
Temporary Income Tax Regs. Under section 1041(b), the
nontransferring spouse (here, Mr. Read) who actually receives
property or is deemed to receive property from the transferring
spouse has a basis in such property equal to the adjusted basis
thereof in the hands of the transferring spouse. This is true
even if the nontransferring spouse pays or is deemed to pay the
transferring spouse consideration for that property. See sec.
1.1041-1T(c), Q&A-11, Temporary Income Tax Regs., 49 Fed. Reg.
34453 (Aug. 31, 1984).
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