Carol M. Read, et al. - Page 65




                                       - 65 -                                         
          transferring spouse receives money from the corporation in return           
          for her stock.  This receipt of money (especially if it repre-              
          sents a substantial gain as in this case) benefits the transfer-            
          ring spouse.  Oftentimes the transfer will also generally benefit           
          the spouse who is the remaining shareholder.  This is the same              
          dilemma that courts confronted in trying to determine whether a             
          redemption of one shareholder’s stock could ever be considered a            
          constructive dividend to the remaining shareholder.  As a result,           
          the courts fashioned the primary and unconditional obligation               
          test that we applied in Arnes II.  The fact that Ms. Read’s                 
          transfer was simply “in the interest of” Mr. Read or that Mr.               
          Read received “some general benefit” is an insufficient reason              
          for us to conclude that Mr. Read could have a constructive                  
          dividend.  See Ingham v. United States, 167 F.3d 1240 (9th Cir.             
          1999), where the court explained that a transfer to a third party           
          would not be considered “on behalf of” the other spouse within              
          the meaning of Q&A-9 unless the transfer relieved the other                 
          spouse of a “specific legal obligation or liability.”  Id. at               
          1244.  The fact that the other spouse receives “some general                
          benefit” is insufficient.  Id.                                              
               Because Q&A-9 controls the tax treatment of both spouses, a            
          divorce-related corporate redemption transaction should not be              
          considered to be a transfer “on behalf of” the nontransferring              
          spouse within the meaning of Q&A-9 unless the nontransferring               






Page:  Previous  55  56  57  58  59  60  61  62  63  64  65  66  67  68  69  70  71  72  73  74  Next

Last modified: May 25, 2011