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intended to displace longstanding principles used in determining
whether a corporate redemption of one shareholder’s stock could
be treated as a distribution to the remaining shareholder. In
Arnes II, we specifically held that the enactment of section 1041
did not change the primary and unconditional standard for deter-
mining whether a redemption of one spouse’s stock can result in a
constructive dividend to the other spouse. In Arnes II, 102 T.C.
at 528, we stated: “The rationale of Edler [the primary and
unconditional test] was not affected by the enactment of section
1041, and the case is still the law of the Court of Appeals for
the Ninth Circuit, to which this case is appealable.”4 That is
undoubtedly why all the parties in the instant case presented
their arguments as if the primary and unconditional obligation
standard applied for purposes of determining the inextricably
related questions of whether Q&A-9 applies and whether the
redemption of Ms. Read’s stock should be treated as a dividend to
Mr. Read.5
4It has been suggested that Arnes II did not discuss the
impact that sec. 1041 and Q&A-9 would have on the spouse who was
the remaining shareholder. However, as indicated above, in Arnes
II we held that enactment of sec. 1041 had no impact on the tax
treatment of the spouse who was the remaining shareholder after a
divorce-related redemption of the other spouse’s stock. This
issue was clearly before the Court as shown by the various
concurring and dissenting opinions in Arnes II.
5It has also been suggested that the primary and
unconditional standard has no applicability to sec. 1041 and Q&A-
9 because the primary and unconditional standard focuses on the
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