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Trust, which is the plaintiff in the above-referenced refund
action, owns its interest in Mr. Walker’s claim by virtue of an
assignment made by Mr. Walker’s estate. Petitioner’s deficiency
action and the refund action brought by the Walker Family
Irrevocable Trust constitute what is known as a “whipsaw”
position for respondent because of the inconsistent positions
taken by the two parties with respect to the gain resulting from
the sale of the Happy Valley property to Parker Development.
OPINION
Petitioner’s Gain on the Sale of the Happy Valley Property
Petitioner contends that under section 1041 she is liable
for tax on only 25 percent of the gain that resulted from the
sale of the Happy Valley property to Parker Development.
Section 1041 provides a broad rule of nonrecognition-of-gain
treatment for sales, gifts, and other transfers of property
between spouses or between former spouses and incident to
divorce. Sec. 1041(a). The basic policy of section 1041 is to
treat a husband and wife as one economic unit and to defer, but
not eliminate, the recognition of any gain or loss on
interspousal property transfers until the property is conveyed to
a third party outside the economic unit. Blatt v. Commissioner,
102 T.C. 77, 80 (1994). This policy extends to transfers of
property between former spouses so long as the transfers take
place incident to divorce. See sec. 1041(a)(2).
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