- 63 -
redemption transaction.
Arnes II was decided for a tax year to which Q&A-9 was
applicable. Indeed, the Court of Appeals for the Ninth Circuit
had applied Q&A-9 to Mrs. Arnes giving her the nonrecognition
benefit of section 1041. See Arnes v. United States, 981 F.2d
456 (9th Cir. 1992).7 Our majority opinion in Arnes II dealt
only with whether Mr. Arnes had received a constructive dividend.
In Arnes II, we found that the redemption of one spouse’s stock
could be a constructive dividend to the other spouse only if the
redemption satisfied a primary and unconditional obligation of
the nontransferring spouse. In Arnes II, the majority opinion
expressed no view on whether the primary and unconditional
standard had to be met in order for section 1041 and Q&A-9 to
apply to a corporate redemption. That opened the possibility
that a different standard would be applicable for purposes of
giving section 1041 relief to the transferring spouse. This, in
turn, opened the possibility that the Commissioner could be
whipsawed. However, a total of 9 of the 18 Judges who partici-
pated in the consideration of Arnes II (including the author of
the majority opinion in Arnes II) indicated in concurring and
dissenting opinions that section 1041 and Q&A-9 required symmet-
7The Court of Appeals for the Ninth Circuit concluded that
the obligation to purchase Mrs. Arnes’ stock was Mr. Arnes’
obligation, not the corporation’s. Thus, the Court of Appeals’
opinion is consistent with the primary and unconditional
obligation standard.
Page: Previous 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 NextLast modified: May 25, 2011