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of stock.3
One of the purposes for enacting section 1041 was to prevent
divorcing spouses from whipsawing the Commissioner by taking
inconsistent positions on divorce-related transfers. In Blatt v.
Commissioner, 102 T.C. 77, 79 (1994), we explained:
In part, Congress enacted section 1041 to replace the
holding in United States v. Davis, 370 U.S. 65 (1962),
that a divorce-related transfer of property in exchange
for the release of marital claims resulted in recogni-
tion of gain to the transferor. H. Rept. 98-432, at
1491-1492 (1984). Before the enactment of section
1041, as a result of Davis, the transferring former
spouse was taxable on a divorce-related transfer of
appreciated property to his or her former spouse, and
the recipient received a basis in the transferred
property equal to its fair market value on the date of
transfer. United States v. Davis, supra. Thus, the
Government was whipsawed if such a transferor did not
report any gain on a transfer of appreciated property.
Accordingly, in 1984, Congress enacted section 1041 to
remedy this whipsaw. H. Rept. 98-432, at 1491-1492
(1984). [Fn. ref. omitted.]
Q&A-9 specifies the way a transaction will be treated for
both spouses and requires symmetrical results as to those spouses
in order to prevent a whipsaw. Under Q&A-9, if a spouse’s
transfer to a third party qualifies for nonrecognition under
section 1041, then she is treated as if she transferred the
property to the other spouse (nontransferring spouse). Section
3It has been suggested that Q&A-9 can never apply to a
corporate redemption. If this were true, a corporate redemption
of one spouse’s stock that satisfied the other spouse’s primary
and unconditional obligation to purchase that stock could result
in both spouses being taxed on the redemption. Such a result is
contrary to the objective of sec. 1041, the Commissioner’s
position, and existing case law.
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