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ately transferring the property to the third party. The
deemed transfer from the nontransferring spouse (or former
spouse) to the third party is not a transaction that quali-
fies for nonrecognition of gain under section 1041.
Nowhere in Q&A-9, or, for that matter, in any of the other
Q&A’s, do we read that a gain arising from a spouse’s sale of assets
to a third party qualifies for nonrecognition treatment under section
1041. As we understand the majority Opinion, a spouse such as Ms.
Read does not have to recognize the gain from the redemption of her
stock by virtue of section 1.1041-1T(c), Q&A-10 (Q&A-10), Temporary
Income Tax Regs., 49 Fed. Reg. 34453 (Aug. 31, 1984). We disagree.
Although Q&A-10 does state that “The transferor of property under
section 1041 recognizes no gain or loss on the transfer even if the
transfer was in exchange for the release of marital rights or other
consideration”, nothing in that Q&A (or in any of the other Q&A’s)
extends that nonrecognition treatment to a transfer of property that
is in essence a sale of stock by a spouse to a third party. Q&A-10
simply addresses interspousal transfers of property which otherwise
would be considered sales for Federal income tax purposes; i.e., when
one spouse transfers stock to the other spouse in exchange for its
value in cash.
As we understand the breadth of Q&A-9, with a fair reading of
our reviewed opinion in Blatt v. Commissioner, 102 T.C. 77 (1994), in
mind, Q&A-9 does not reach a transfer of property by a spouse to a
third party where the transfer is, in substance and in form, a sale
to the third party. Rather, we believe, Q&A-9 is limited to those
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