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This was because there was no question that the person whose
stock was being redeemed would be taxable on any gain on the sale
of his or her stock, regardless of who paid for the stock or
whether the remaining shareholder was treated as having received
a dividend. The enactment of section 1041 introduced a broad
rule of nonrecognition for transfers of property between spouses
and former spouses incident to divorce. Section 1041 makes no
reference to transfers to third parties. However, temporary
regulations issued under section 1041 explain the circumstances
in which a spouse’s transfer to a third party qualifies as a
transfer to which section 1041 applies. See sec. 1.1041-1T(c),
Q&A-9, Temporary Income Tax Regs. (Q&A-9), 49 Fed. Reg. 34453
(Aug. 31, 1984).
Q&A-9 does not specifically address a spouse’s transfer of
stock to the issuing corporation as part of a corporate redemp-
tion that was required by a divorce judgment. However, in this
case and prior cases, the Commissioner has consistently treated
Q&A-9 as applying to divorce-related corporate redemptions, and
this position has been adopted by the Court of Appeals for the
Ninth Circuit in Arnes v. United States, 981 F.2d 456 (9th Cir.
1992). See also Hayes v. Commissioner, supra, and Craven v.
United States, 83 AFTR 2d 99-1268, 99-1 USTC par. 50336 (N.D. Ga.
1999), in which Q&A-9 was applied to divorce-related redemptions
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