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nonrecognition-of-gain treatment under section 1041(a)(2). See
also sec. 1.1041-1T(d), Q&A-10, Temporary Income Tax Regs., 49
Fed. Reg. 34453 (Aug. 31, 1984) (providing that the transferor of
property under section 1041 is to recognize no gain or loss on
the transfer, regardless of whether the transfer is in exchange
for consideration). Petitioner received the 25-percent interest
in the Happy Valley property with a basis equal to Mr. Walker’s
adjusted basis in that 25-percent interest. Sec. 1041(b); see
also sec. 1.1041-1T(d), Q&A-11, Temporary Income Tax Regs., 49
Fed. Reg. 34453 (Aug. 31, 1984) (providing that, in all transfers
subject to section 1041, the basis of the transferred property in
the hands of the transferee is the adjusted basis of such
property in the hands of the transferor immediately before the
transfer, regardless of whether the transfer is a bona fide sale
in which the transferee pays the transferor consideration for the
transferred property).
Petitioner’s sale of her undivided 50-percent interest in
the Happy Valley property in October 1997 is not a transaction
that falls within the statutory language of section 1041(a)
because it was not a transfer to or on behalf of her spouse or
her former spouse and incident to divorce. Therefore, section
1041(a) does not relieve petitioner from recognizing the gain
resulting from the sale of her interest in the Happy Valley
property.
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