t cc no united_states tax_court carol m read et al petitioners v commissioner of internal revenue respondent docket nos filed date w and h who were married owned all of the vot-- ing and virtually all of the nonvoting_stock of x corporation x they divorced and the final judgment dissolving their marriage divorce judgment ordered that w sell and convey to h or at h's election to x or x's esop plan all of her x stock that h or at h's election x or x's esop plan pay a stated amount of cash to w simultaneously with the sale and convey- ance of such stock and that as additional consid- eration h or at h's election x or x's esop plan deliver to w a promissory note bearing 9-percent inter- est for the balance of the purchase_price of that stock pursuant to the divorce judgment h elected that the sale and conveyance of all of w's x stock with ‘cases of the following petitioners are consolidated here- mulberry motor parts inc docket no and william a read docket no -- - be made to x instead of to h that x instead of h pay the stated amount of cash to w simultaneously with that sale and conveyance and that x instead of h issue a promissory note to w bearing 9-percent interest for the balance of the purchase_price there- after pursuant to h's election under the divorce judgment w sold and transferred to x instead of to h all of the x stock that she owned sec_1041 i r c provides that no gain_or_loss is to be recognized on a transfer of property by an individual to a spouse or a former spouse but only if the transfer to the former spouse is incident to the divorce sec_1_1041-1t q a-9 temporary income_tax regs q a-9 fed reg date addresses a transfer of property by a spouse trans- ferring spouse to a third party on behalf of a spouse or former spouse nontransferring spouse provided that the other requirements of that temporary regula- tion and sec_1041 i r c are satisfied q a-9 treats such a transfer as a transfer of property by the trans- ferring spouse directly to the nontransferring spouse that qualifies for nonrecognition treatment under sec_1041 i r c and an immediate transfer of the property by the nontransferring spouse to the third party ina transaction that does not qualify for nonrecognition treatment under sec_1041 i r c petitioners argue that the legal standard that must be applied in order to determine whether w’s transfer of her x stock to x was a transfer to a third party on behalf of h within the meaning of q a-9 is the primary--and-unconditional-obligation standard estab- lished by constructive-dividend decisional law how- ever they disagree as to whether the primary-and- unconditional-obligation standard is satisfied as to mr read in the instant cases held the primary-and-unconditional-obliga- tion standard is not an appropriate standard to apply in order to determine whether w’s transfer of her x stock to xk was a transfer of property by w to a third party on behalf of h within the meaning of q a-9 held further the primary-and-unconditional-obligation standard is not an appropriate standard to apply in any case involving a corporate redemption in a divorce setting in order to determine whether the transfer of property by the transferring spouse to a third party is on behalf of the nontransferring spouse within the meaning of q a-9 held further applying the common ordinary meaning of the phrase on behalf of in q a-9 w's transfer of her x stock to x was a transfer of property by w to a third party on behalf of h within the meaning of that temporary_regulation held further pursuant to sec_1041 i r c no gain shall be recognized by was a result of that transfer mark a brown for petitioner in docket no karen e lewis and d michael o'leary for petitioners in docket nos and robert w dillard for respondent opinion chiechi judge these cases are before us on cross-motions for partial summary_judgment filed by carol m read ms read and by william a read mr read and mulberry motor parts inc mmp we shall refer to the motion for partial summary judg- ment filed by ms read as ms read's motion to the motion for partial summary_judgment filed by mr read and mmp as mr read's and mmp's motion and collectively to those two motions as the cross-motions for partial summary_judgment a partial summary adjudication may be made that does not ms read incorrectly characterized her motion as a motion for summary_judgment however in addition to the determination in the notice_of_deficiency notice issued to ms read that we address in this opinion respondent made two other determinations in that notice one of which respondent conceded and the other of which is computational consequently we have recharacterized ms read's motion as a motion for partial summary_judgment q4e- dispose_of all the issues in a case if inter alia it is shown that there is no genuine issue as to any material fact with respect to the question s on which partial summary adjudication is sought see rule b we are in agreement with the parties that there are no genuine issues of material fact and that the facts material to the court's disposition of the cross- motions for partial summary_judgment are set forth in those paragraphs of the stipulation of facts and those exhibits at- tached to that stipulation which the court made part of the record in these cases on date at the time they filed their respective petitions ms read resided in san francisco california mr read resided in lakeland florida and mmp's principal_place_of_business was in bartow florida in ms read filed a petition for dissolution of her marriage to mr read marriage dissolution action in the circuit_court of the tenth judicial circuit of the state of florida polk county florida court at the time she filed that petition ms read owned big_number shares of voting and big_number shares of nonvoting and mr read owned big_number shares of voting and big_number shares of nonvoting common_stock of mmp a corporation engaged in the business of selling automobile parts 7all rule references are to the tax_court rules_of_practice and procedure all section references are to the internal_revenue_code in effect for the years at issue - - during the trial in the marriage dissolution action ms read and mr read reached an oral settlement agreement marital settlement agreement which was read into the record in that action on date the marital settlement agreement provided in pertinent part wife ms read agrees to convey to husband mr read all of her stock in mulberry motor parts both voting and non-voting and for such stock husband or at his option mulberry motor parts or the aesop sic plan of mulberry motor parts agrees to purchase such stock at its appraised value of dollar_figure such purchase to be closed within days of this date and to be paid as follows first dollar_figure down to be paid in cash the balance of dollar_figure to be evidenced by promissory note to be signed by the purchaser but if the purchaser is other than william a read to be guaranteed by william a read and bearing interest at the rate of nine percent payable monthly on the principal due from time to time and with the principal to be payable dollar_figure after twelve months and dollar_figure principal each year thereafter until the principal is paid in full with the right of prepayment at any time without pen- alty and such purchase to be secured_by a security_interest in the stock to be sold but with husband retaining a full right so long as he is in compliance and not in default on such note to control such stock and to vote it x husband agrees to pay the wife as permanent periodic alimony the sum of dollar_figure per month and con- tinuing until the death of the wife the death of the husband the remarriage of wife or wife's cohabitation with another man to whom she is not related by blood or marriage on a continuing basis for days or more xk kek additionally provided however that such alimony shall increase in amount from dollar_figure per month to dollar_figure per month at such time as the final principal payment is made by husband on the stock purchase called for on the mulberry motor parts stock the temporary alimony in the amount of dollar_figure the december payment of which has already been made will terminate and no longer be payable in the event that husband pays the down payment on the stock purchase or causes it to be paid_by either mul- berry motor parts or the aesop sic plan and pays the consideration for the conveyance of the house and the dollar_figure lump sum alimony on or before december 31st however if husband fails to do so in whole or in part the dollar_figure temporary alimony will continue for the month of january subject_to termination only upon the death of the wife additionally as part of the temporary support agreement but for consideration in addition furnished by the wife husband has agreed to maintain in force insurance on his life with death_benefits payable to wife in the amount of dollar_figure and continu- ing for a period of time that was ascertainable but uncertain parties agree that so long as william a read owes to his wife any amount of principal on the stock pur- chase of mulberry motor parts he will maintain that insurance in force with her as beneficiary with sic the death_benefits thereof having the right to cancel such designation when the stock is paid in full in the event however of his death prior to payment of the stock purchase in full the insurance proceeds will apply toward the balance then due and owing on date the florida court entered the divorce judgment dissolving the marriage the divorce judgment ordered - j- and adjudged in pertinent part that the marriage of husband william a read and wife carol elizabeth read is hereby dissolved the marital settlement agreement dictated into the record before the court on date is ratified and approved by this court and the parties are ordered to comply with all terms of that agreement wife shall sell and convey to husband or at husband's election to mulberry motor parts inc or the esop plan of mulberry motor parts inc all of the outstanding_stock which she holds in mulberry motor parts inc consisting of big_number shares of voting_stock and big_number shares of non-voting stock by date as consideration husband or at his election mulberry motor parts inc or the esop plan of mul- berry motor parts inc shall pay to wife simulta- neously with the conveyance of such shares the sum of dollar_figure as additional consideration husband or at his election mulberry motor parts inc or the esop plan of mulberry motor parts inc shall deliver to wife a promissory note in the principal_amount of dollar_figure which sum represents the balance of the purchase_price to be paid for the stock the note shall bear interest at the rate of which interest shall be payable monthly beginning one month after the date of the note the principal of the note shall be paid at the rate of dollar_figure per year the first payment shall be made twelve months following the date of the note and each year thereafter until the note is paid in full husband or mulberry motor parts inc or the esop plan of mulberry motor parts inc as the case may be shall have right of prepayment without penalty the note delivered to wife shall be personally guaranteed by husband the sale of the stock by wife and the unpaid balance for the purchase of the stock by husband shall be secured_by a security_interest in the stock to be sold for which payments has sic not been made with husband retaining the full right to vote said stock and control said stock so long as he is in compliance with the terms of this paragraph the amount of the secu- rity interest shall reduce pro_rata as principal pay- ments are made husband has been paying the sum of dollar_figure per month as temporary alimony to wife husband's obliga- tion to pay temporary alimony shall terminate on the lst of the month following the month in which husband completes the payment on the down payment on the stock purchase plan in the amount of dollar_figure and pays the lump sum alimony in the amount of dollar_figure the perma-- nent periodic alimony as provided for in paragraph shall begin the lst of the month following the payment of such items husband's obligation to pay temporary alimony is subject_to prior termination upon the death of wife husband shall pay to wife as and for perma- nent periodic alimony the sum of dollar_figure per month until the death of wife the death of husband wife's remarriage or until wife cohabits with a man to whom she is not related by blood or marriage on a continuing basis for at least sixty days whichever first occurs on the lst of the month following the final payment to wife by husband of the total consideration owed to her by reason of the transfer of her stock in mulberry motor parts inc such alimony shall increase to the sum of dollar_figure per month these provisions for permanent periodic alimony provided in this paragraph of this final judgment shall not be subject_to modifi- cation by either party both parties have expressly waived all right to seek modification of the amounts and terms under which permanent periodic alimony is payable husband shall maintain on his life with wife as beneficiary life_insurance having death_benefits in the amount of dollar_figure husband's obligation to con- tinue insurance for the benefit of wife shall terminate upon the payment in full of the purchase_price of the stock in mulberry motor parts inc at some time on or after date the date on which the divorce judgment was entered and on or prior to --- - date mr read elected pursuant to the divorce judgment that the sale and conveyance by ms read of all of her mmp stock be made to mmp instead of to mr read that mmp instead of mr read pay dollar_figure to ms read simultaneously with her sale and conveyance of such stock to mmp and that mmp instead of mr read issue a promissory note to ms read in the principal_amount of dollar_figure and bearing 9-percent interest on date the board_of directors of mmp composed of mr read ms read and j s huggart jr executed a document entitled action by written consent of the board_of directors of mulberry motor parts inc with respect to the foregoing elec-- tion that mr read made pursuant to the divorce judgment mmp board action by written consent the mmp board action by written consent stated in pertinent part we the undersigned constituting all of the under florida law any_action which is required to be or may be taken at a meeting of the directors of a corporation may be taken without a meeting of such directors provided that a consent in writing setting forth the action to be taken is signed by all of the directors and is filed in the minutes of the proceedings of the board_of directors any such action by unanimous written consent of each director has the same effect as a unanimous vote of the board_of directors see fla stat ann sec west current version at fla stat ann sec west by executing the document entitled action by written consent of the board_of directors of mulberry motor parts inc the three directors of mmp obviated the requirement under florida law to hold a meeting at which such directors could adopt by a majority vote a resolution authoriz-- ing mmp inter alia to repurchase all of ms read’s mmp stock see fla stat ann sec west current version at fla stat ann sec west supp -- - members of the board_of directors of mulberry motor parts inc do hereby take the following action by unanimous written consent pursuant to the provi- sions of section florida statutes resolved that it is advisable and in the best interest of the corporation that the corporation purchase big_number shares of its outstanding voting common capital stock and x big_number shares of its outstanding non- voting common capital stock from carol e read for a purchase_price of dollar_figure the officers of the corporation are hereby directed to repurchase such stock in accor- dance with the terms of the certain stock purchase agreement dated date x the appropriate officers of the cor- poration are hereby authorized and directed to execute and deliver on behalf of the cor- poration such agreement the installment promissory note and stock pledge agreement referred to in such agreement and any other documents necessary to consummate such trans- action the repurchased shares which are not subject_to the stock pledge agreement shall be retired on the books of the corporation as shares which are subject_to the stock pledge agreement are released such shares shall be retired on the books of the corpora- tion on date pursuant to mr read’s election under the divorce judgment mmp and ms read entered into the stock purchase agreement stock purchase agreement that was authorized in the mmp board action by written consent that agreement provided in pertinent part whereas stockholder ms read owns certain shares of the common capital stock of the corporation mmp whereas stockholder wishes to sell all of her common capital stock of the corporation to the corpora- tion which wishes to purchase such stock now therefore the parties agree as follows sales and purchases of stock simultaneously with the execution of this agreement stockholder shall sell and the corporation shall redeem and purchase one thousand two hundred big_number shares of voting_stock of the corporation and twelve thousand big_number shares of nonvoting common_stock of the corporation purchase_price the purchase_price for the stock redeemed by the corporation shall be eight hun- dred thirty-eight thousand seven hundred twenty-four dollars dollar_figure such price to be paid in the following manner a down payment the corporation shall pay two hundred thousand dollars dollar_figure in cash upon delivery of the purchased stock by stockholder b installment promissory note the corporation shall deliver to stockholder an installment promissory note for six hundred thirty-eight thousand seven hundred twenty- four dollars dollar_figure the note executed by the appropriate officers of the corporation and individually guaranteed by william a read upon delivery of the pur- chased stock by stockholder such note shall be in the form attached hereto as exhibit a c collateral security to secure the payment of the note big_number shares of the nonvoting common capital stock redeemed by the corporation shall be pledged by assign- ment as collateral security to the stock- holder in accordance with a stock pledge agreement to be executed by the stockholder and the corporation contemporaneously with the note such stock pledge agreement shall be in the form attached hereto as exhibit b pursuant to mr read's election under the divorce judgment on date ms read transferred to mmp her big_number shares of voting and big_number shares of nonvoting common_stock of mmp -- ms read’s date transfer of mmp stock mmp paid ms read dollar_figure by check and mmp issued to ms read an installment promissory note in the amount of dollar_figure and bearing 9-percent annual interest installment promissory note that note pro- vided in pertinent part for value received the undersigned mmp promises to pay to the order of carol e read the principal sum of six hundred thirty-eight thousand seven hundred twenty-four and no 100ths dollars dollar_figure to- gether with interest thereon from date at the rate of nine per cent per annum interest on the unpaid principal balance shall be payable in equal monthly installments commencing on date and continuing on the fifth day of each month thereafter until the principal sum and interest have been fully paid principal shall be payable in annual install- ments of fifty thousand and no 100ths dollars dollar_figure each commencing on date and continuing on the fifth day of february of each year through with a final installment of thirty-hight thousand seven hundred twenty-four and no 100ths dol- lars dollar_figure due on date the undersigned hereby waives presentment for payment notice of nonpayment protest and notice of protest of this note the installment promissory note was signed by william a read as president of mmp immediately beneath that signature appeared the following guaranty by mr read in his individual capacity which he signed on date individual guaranty the undersigned mr read hereby individually unconditionally guarantees the payment of all sums due under this installment promissory note the individual guaranty by mr read of mmp’s installment promis-- sory note expressed in unambiguous terms an unconditional guar- anty of mr read consequently under florida law that guaranty is what is known as an absolute guaranty see mullins v sunshine state serv corp so 2d fla dist ct app anderson v trade winds enters corp so 2d fla dist ct app and mr read was secondarily liable on mmp’s installment promissory note see west flagler associ- ates ltd v dept of revenue for fla so 2d fla dist ct app scott v city of tampa so 2d fla dist ct app the stock pledge agreement referred to in and attached to the stock purchase agreement was entered into on date stock pledge agreement the stock pledge agreement provided in pertinent part whereas pledgor mmp is indebted to pledgee ms read in the amount of six hundred thirty-eight thou- sand seven hundred twenty-four and no 100th dollars dollar_figure as evidenced by that certain promissory note from pledgor to pledgee dated date installment promissory note and whereas pledgor owns big_number shares of its nonvot-- ing common capital stock which it holds in its treasury and which it has purchased from pledgee and whereas pledgor as the owner of the above stock agrees that it shall be pledged to pledgee as security for the repayment of such indebtedness now therefore the parties agree as follows pledge pledgor hereby grants to pledgee a security_interest in big_number shares of its nonvoting common capital stock pledgee shall hold the pledged shares as security for the repayment of the indebtedness described above and shall not encumber or dispose_of such shares except in accordance with the provisions of paragraph of this agreement term the shares pledged hereunder shall remain so pledged to pledgee until released in accor- dance with the provisions of paragraph of this agree- ment release of stock a upon each principal payment in the amount of fifty thousand and no 100th dollars dollar_figure in accordance with the terms of x installment promissory note pledgor shall be entitled to the release from this stock pledge agreement of shares of non- voting common_stock upon the demand at any time of pledgor pledgee shall deliver to pledgor the stock certificate for reissuance of such released shares and pledgor shall issue and deliver to pledgee a new certifi- cate representing the shares which remain subject_to the pledge b upon the repayment in full with interest of the indebtedness in accordance with the terms of installment promissory note pledgee shall transfer to pledgor all of the remaining stock pledged hereunder default if pledgor defaults in the perfor- mance of any of the terms of this agreement or if pledgor defaults in the payment of the indebtedness described in installment promissory note then pledgee shall have the following options exercisable at any time following thirty days after any such default a pledgee may declare the unpaid balance of the indebtedness immediately due and payable and then sell the pledged shares xk k pledgee shall thereafter account to pledgor for any surplus proceeds which shall be paid over to pledgor pledgor shall remain liable to pledgee for any deficiency b pledgee may declare the unpaid balance of indebtedness immediately due and payable and retain the pledged shares in satisfaction of pledgor's obligations under x installment promissory note and under this agreement c pledgee may declare the unpaid balance of indebtedness immediately due and payable and thereafter exercise all rights and remedies afforded a secured party under the provisions of the uniform commercial code in force in florida as of the date of this agreement since date mr read has owned percent of the outstanding voting common_stock of mmp at the time of ms read’s date transfer of mmp stock and during the years at issue mmp's esop owned big_number shares of class b nonvot-- ing common_stock of mmp mmp classified the installment promissory note as a liabil- ity on its balance_sheet for each of the years and pursuant to that note mmp made the following payments of principal and interest to ms read during the years indicated principal dollar_figure dollar_figure dollar_figure interest big_number big_number big_number mmp deducted the interest payments that it made to ms read during each of the years and in its federal -- - income_tax tax_return for each of those years ms read did not report any income with respect to her transfer of mmp stock to mmp except for the interest payments under the installment promissory note that mmp made to her during and she reported those interest payments as interest_income in her tax returns for those years mr read did not report in his tax returns for and any income with respect to ms read’s date transfer of mmp stock respondent determined in the notice issued to ms read for and that the principal payment under the installment promissory note that mmp made to her during each of those years constitutes long-term_capital_gain respondent made no determi- nations in that notice with respect to the interest payments under the installment promissory note that ms read reported as interest_income in her returns for those years respondent determined in the notice issued to mr read for and that the principal and interest payments under the installment promissory note that mmp made to ms read during those years are constructive dividends to mr read respondent determined in the notice issued to mmp for the notice issued to ms read did not relate to ms read's taxable_year ‘the parties stipulated that ms read's basis in the mmp stock that she owned was zero and that the interest payments under the installment promissory note that it made to ms read during those years are not deductible the underlying common issue presented in the cross-motions for partial summary_judgment is whether sec_1041 applies to the transfer by ms read to mmp of her stock in that company it is ms read's position that sec_1041 applies to that trans-- fer while mr read and mmp take the position that it does not ’ respondent's role here is that of a stakeholder nonetheless respondent has indicated that ms read has the better argument that she should not recognize any gain from the sale of her stock pursuant to sec_1041 sec_1041 provides in pertinent part sec_1041 transfers of property between spouses or incident_to_divorce a general_rule --no gain_or_loss shall be recog- nized on a transfer of property from an individual to or in trust for the benefit of -- a spouse or a former spouse but only if the transfer 1s incident to the divorce ob transfer treated as gift transferee has transferor's basis ---in the case of any transfer of property described in subsection a -- ‘mr read and mmp indicated in their motion that if the court were to hold that sec_1041 applies to ms read’s transfer of her mmp stock to mmp the determinations in the respective notices issued to mr read and to mmp should be sustained -- - for purposes of this subtitle the prop- erty shall be treated as acquired by the trans- feree by gift and the basis of the transferee in the prop- erty shall be the adjusted_basis of the trans- feror c incident_to_divorce ----for purposes of subsec-- tion a a transfer of property is incident to the divorce if such transfer-- occurs within year after the date on which the marriage ceases or is related to the cessation of the mar- riage temporary but not final regulations have been issued under sec_1041 those temporary regulations provide that the transferor_of_property under sec_1041 is to recognize no gain_or_loss on the transfer regardless of whether the transfer is in exchange for consideration see sec_1_1041-1t q a-10 temporary income_tax regs fed reg date the temporary regulations under sec_1041 further provide that in all transfers subject_to that section the basis of the trans-- ferred 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 consider- ation for the transferred property see sec_1_1041-1t q a- temporary income_tax regs fed reg date - - the temporary regulations under sec_1041 also describe the circumstances in which a transfer of property by a spouse to a third party on behalf of a spouse or former spouse qualifies as a transfer to which sec_1041 applies see sec_1_1041-1t qo a-9 temporary income_tax regs q a-9 fed reg date q a-9 provides in pertinent part q-9 may transfers of property to third parties on behalf of a spouse or former spouse qualify under sec_1041 a-9 yes there are three situations in which a transfer of property to a third party on behalf of a spouse or former spouse will qualify under sec_1041 provided all other requirements of the section are satisfied the first situation is where the trans- fer to the third party is required by a divorce_or_separation_instrument the second situation is where the transfer to the third party is pursuant to the written request of the other spouse or former spouse the third situation is where the transferor receives from the other spouse or former spouse a written consent or ratification of the transfer to the third party in the three situations described above the transfer of property will be treated as made di- rectly to the nontransferring spouse or former spouse and the nontransferring spouse will be treated as immediately 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 qualifies for nonrecognition of gain under sec_1041 ms read contends that her transfer of mmp stock to mmp was a transfer of property by her to a third party on behalf of mr read within the meaning of q a-9 and that that transfer fits within both the first situation and the second situation de- scribed in that temporary_regulation conseguently according to - - ms read sec_1041 prescribes nonrecognition treatment to her with respect to her transfer of mmp stock to mmp mr read and mmp counter that ms read’s date transfer of mmp stock was not a transfer of property to a third party on behalf of mr read within the meaning of q a-9 and that that transfer does not fit within either of the first two situations or the third situation described in that temporary_regulation conse- quently according to mr read and mmp sec_1041 does not provide nonrecognition treatment to ms read with respect to ms read’s date transfer of mmp stock in advancing their respective positions ms read and mr read and mmp argue that 101_tc_593 102_tc_522 and 102_tc_77 prescribe the legal standard that we must apply in order to determine whether ms read’s transfer of her mmp stock to mmp constitutes a transfer of property by a spouse the transferring spouse here ms read to a third party here mmp on behalf of a spouse the nontransfer- ring spouse here mr read within the meaning of q a-9 on- behalf-of standard according to petitioners those cases establish that the on-behalf-of standard may be satisfied in the instant cases only if mr read had a primary and unconditional for convenience we shall refer only to a spouse and not to a former spouse - obligation to purchase ms read’s mmp stock such that under established principles of tax law constructive-dividend deci- sional law see eg 363_f2d_724 8th cir 70_tc_651 mr read received a constructive_dividend to the extent of mmp's earnings_and_profits as a result of mmp’s payment to ms read of the consideration stated in the divorce judgment in redemption of her stock primary-and-unconditional-obligation standard we disagree with petitioners that hayes v commissioner supra arnes v commissioner supra and blatt v commissioner supra require us to apply the primary--and-unconditional-obliga-- tion standard as to mr read in order to determine whether the on-behalf-of standard in q a-9 is satisfied in the instant cases as respondent correctly points out this court has not expressed an opinion on whether the on-behalf-of standard in q a-9 is the same as the primary-and-unconditional-obligation standard in constructive-dividend decisional law see arnes v commissioner supra pincite n which this court decided after it decided hayes v commissioner supra and blatt v commissioner supra we find petitioners’ reliance on those three cases to support their view that in the instant cases the on-behalf-of standard in q a-9 is the same as the primary-and-unconditional-obligation standard in constructive-dividend decisional law to be misplaced -- - the only issue that we decided in hayes v commissioner supra was whether the redemption by jre inc jre a corpora- tion owned by the taxpayer ms hayes and the taxpayer mr hayes who was her former spouse ’ of ms hayes’ jre stock resulted ina constructive_dividend to mr hayes the role of the commissioner of internal revenue commissioner in hayes like respondent’s role in the instant cases was that of a stakeholder nonethe- less the commissioner argued in hayes v commissioner supra that the tax incurred as a result of the redemption of ms hayes’ jre stock should be borne by mr hayes that was because according to the commissioner jre's redemption of ms hayes' stock constituted a constructive_dividend to mr hayes since at the time of that redemption he had a primary and unconditional obligation to buy that stock from her see id pincite on the facts presented we held that mr hayes received a constructive_dividend as a result of that redemption because when jre redeemed ms hayes’ jre stock it satisfied mr hayes' primary and uncondi- tional obligation to purchase that stock from ms hayes see id pincite having so held we stated respondent has indicated to the court that if we find that mr hayes received a constructive_dividend in connection with jre's undertaking to redeem ms hayes' stock as we have done she will concede that sec_1041 shields ms hayes from recognition of gain on the amount_realized from the exchange of her stock ac-- we had consolidated the cases of ms hayes and mr hayes for trial briefing and opinion - - cordingly under respondent's concession our resolu-- tion of the constructive_dividend issue in mr hayes' case renders the sec_1041 issue in ms hayes' case moot id pincite emphasis added we did not decide any issue in hayes under q a-9 and sec_1041 similarly the only issue that we decided in arnes v commissioner supra was whether the redemption by a corporation known as moriah which was owned equally by the taxpayer mr arnes who was before us and his former spouse ms arnes who was not before us ’ of ms arnes’ moriah stock resulted in a con- structive dividend to mr arnes see arnes v commissioner supra pincite the commissioner’s position in arnes was that at the time of that redemption mr arnes had a primary and uncondi- tional obligation to buy ms arnes’ moriah stock therefore according to the commissioner he received a constructive divi- dend as a result of moriah’s redemption of that stock in support of that position the commissioner argued that under 54_tc_742 affd 445_f2d_985 10th cir the conclusion of the u s court_of_appeals for the ninth circuit in 981_f2d_456 any suggestion in 101_tc_593 that the commissioner’s concession under sec_1041 as to ms hayes is confirmed by q a-9 is dictum ‘ims arnes was the taxpayer before the u s court of ap- peals for the ninth circuit in 981_f2d_456 9th cir discussed below -- - 9th cir that the obligation to purchase ms arnes’ stock was mr arnes’ obligation and not the obligation of moriah controlled our decision in 102_tc_522 the commissioner did not ask us in arnes v commis-- sioner supra to determine whether the on-behalf-of standard in q a-9 was met as a result of the transfer by ms arnes who was not a party before us in that case of her moriah stock to that company with respect to the commissioner’s reliance on golsen we held in arnes v commissioner supra pincite golsen v commissioner supra does not apply because arnes v united_states supra does not address the legal issue here whether there is a constructive_dividend to petitioner mr arnes that case con- cerned the tax consequences to joann ms arnes under sec_1041 we note that petitioner was not a party in arnes v united_states supra and joann had a possibly’ adverse position to petitioner in that case on the facts presented we found that mr arnes did not have a primary and unconditional obligation’ to buy ms arnes’ moriah we stated in footnote referred to in the foregoing excerpt from 102_tc_522 n this majority opinion does not express an opinion as to whether the standard of on behalf of the spouse in sec_1_1041-1t q a-9 temporary income_tax regs x is the same as the primary and unconditional obligation rule applicable to a constructive_dividend suffice it to say that our conclusion in this case arnes v commissioner supra is consistent with our conclusion in 102_tc_77 also a court-reviewed opinion 3unlike the divorce judgment involved in the instant cases continued - - stock at the time moriah redeemed it consequently we held that mr arnes did not receive a constructive_dividend as a result of that redemption see id pincite we did not decide any issue in arnes under q a-9 and sec_1041 the only reported opinion of this court in which we decided whether a transfer of property by a transferring spouse to a third party was on behalf of the nontransferring spouse within the meaning of q a-9 is 102_tc_77 in blatt the taxpayer ms blatt and her husband mr blatt each owned percent of the stock of a corporation known as phyllograph see id pincite unlike the divorce judgment involved in the instant cases but like the divorce decree involved in arnes v commissioner supra the divorce decree in blatt provided in pertinent part it is further ordered and adjudged that the parties being equal stockholders shall cause phyllograph corp to redeem plaintiff's ms blatt's stock in said corporation for the sum of forty-five thousand three hundred eighty-four dollars id n pursuant to that divorce decree phyllograph redeemed all of ms blatt's phyllograph stock in exchange for cash see id pincite ms blatt did not report any of the proceeds that she received from phyllograph in redemption of her stock the commissioner continued the divorce decree in arnes v commissioner supra provided that ms arnes and mr arnes were to cause moriah to redeem from ms arnes her moriah stock see id pincite - - determined that ms blatt realized and must recognize long-term_capital_gain as a result of that redemption see id ms blatt took the position in blatt v commissioner supra that the redemption of her stock by phyllograph qualified as a transfer of property to a third party on behalf of mr blatt under q a-9 that is not taxable to her under sec_1041 see id pincite in support of her position ms blatt relied principally on arnes v united_states supra ’ we rejected ms blatt's position and mthe issue in arnes v united_states supra was whether the redemption of ms arnes’ moriah stock pursuant to the divorce decree involved there constituted a transfer of property by ms arnes the taxpayer before the court_of_appeals for the ninth circuit in that case to a third party on behalf of mr arnes within the meaning of q a-9 the court_of_appeals for the ninth circuit the court to which an appeal in ms read's case would normally lie noted inter alia that generally a transfer is considered to have been made 'on behalf of' someone if it satis-- fied an obligation or a liability of that person id pincite on the facts presented that court held that the transfer by ms arnes of her moriah stock to moriah did relieve john mr arnes of an obligation id and that that transfer constituted a transfer to a third party on behalf of mr arnes under q a-9 see id in 167_f3d_1240 9th cir the court_of_appeals for the ninth circuit revisited the meaning of the phrase transfer of property to a third party on behalf of a spouse in q a-9 in ingham the court_of_appeals rejected the taxpayer's expansive definition of that phrase which included all transfers of property that result in a substantial benefit in any form to the nontransferring or former spouse because it found such a definition to be inconsistent with arnes v united_states supra according to the court_of_appeals in ingham v united_states supra pincite the focus of the court's analysis in arnes v united_states supra was not whether the plaintiff's trans-- ferring spouse's former husband had received some general benefit as a result of the plaintiff's transac-- continued -- p7 - indicated that we disagreed with arnes v united_states supra ’ see id pincite in blatt v commissioner supra pincite we addressed the meaning of the phrase on behalf of in q a-9 we stated that the term ‘on behalf of’ means ‘in the interest of’ or ‘as a representative of’ webster's ninth new collegiate dictionary id we found that ms blatt did not claim see id n and that the record does not indicate that petitioner ms blatt was acting in the interest of mr blatt or as a repre- sentative of mr blatt at the time of the redemption id we also indicated in blatt that a transfer that satisfies an obligation or a liability of someone is a transfer on behalf of m4 continued tion but rather whether the transaction had satisfied some legal_obligation or liability owed by her former husband the court_of_appeals held in ingham v united_states supra that because the taxpayer's sale in question to a third party did not satisfy any such obligation or liability of the tax- payer's former spouse the taxpayer was not entitled to nonrecognition treatment with respect to that sale under sec_1041 see id pincite we stated in 102_tc_77 we disagree with arnes any putative benefit to blatt such as relief from a possible claim under marital property distribution laws does not mean that the transfer by petitioner of her shares to phyllograph corporation was on behalf of blatt we note however that the facts in arnes are easily distinguishable from the facts at hand - - that person id we found that petitioner ms blatt does not claim and the record does not indicate that the redemption satisfied any obligation of mr blatt id pincite we further concluded that ms blatt did not otherwise show that she was acting on behalf of mr blatt see id n we found that ms blatt failed to show error in respondent's determination to treat the redemption involved there as a taxable_event to her we held the record in the instant case is devoid of evidence disproving respondent's determination that petitioner's ms blatt's transfer of her stock to corporation phyllograph was not on behalf of mr blatt within the meaning of q a the redemption in form was a transaction between petitioner and corporation she transferred her stock to corporation in exchange for its appreciated value in cash id pincite we did not decide in blatt v commissioner supra that only if the primary-and-unconditional-obligation standard is satisfied as to the nontransferring spouse may a transfer by the transfer- ring spouse to a corporation of such transferring spouse’s stock in that corporation be considered to be a transfer of property by a spouse to a third party on behalf of the nontransferring spouse within the meaning of q a-9 ' moreover the illustration that lenor did we indicate in blatt v commissioner supra that the common ordinary meaning ie the dictionary definition of the phrase on behalf of which we cited with approval and on which we relied in that case is to be applied for purposes of q a-9 only to factual contexts that were not even involved in blatt ie to factual contexts other than corporate redemp- tions in addition we did not indicate in blatt that the continued - - we gave in blatt of a transfer of property by a spouse to a third party that satisfies an obligation or a liability of the other spouse which we indicated in blatt is one type of transfer by a transferring spouse that constitutes a transfer of property to a third party on behalf of a nontransferring spouse within the meaning of q a-9 did not implicate the primary-and- unconditional-obligation standard if as petitioners contend here we had concluded in 102_tc_77 a case which like the instant cases involved a corpo- rate redemption in a divorce setting that satisfaction of the primary--and-unconditional-obligation standard as to the nontransferring spouse is the only way in which the on-behalf-of standard in q a-9 may be met in the case of such a redemption we t6 continued additional meaning of the phrase a transfer of property on behalf of someone which we cited with approval and on which we relied in that case ie a transfer of property that satis-- fies an obligation or a liability of someone is the only meaning that can be attributed to the on-behalf-of standard in q a-9 in the context of corporate redemptions ‘instead we gave the following illustration to illustrate the operation of q a assume that h owes a debt to a bank and w as part of a divorce settlement transfers her unencumbered appreciated stock to the bank in discharge of h’s debt this transfer falls within the first situation described in q a that is the transfer is required by a di- vorce instrument and is made by w on behalf of h blatt v commissioner supra pincite -- - would have expressly so stated we did not ’ we have rejected petitioners’ reliance on 101_tc_593 102_tc_522 and blatt v commissioner supra to support their view that in the instant cases the on-behalf-of standard in q a-9 is the same as the primary-and-unconditional-obligation standard in constructive-dividend decisional law we shall now decide whether ms read’s date transfer of mmp stock will satisfy the on-behalf-of standard in q a-9 only if as petition- ers argue the primary-and-unconditional-obligation standard is satisfied as to mr read we hold that the primary-and- unconditional-obligation standard is not an appropriate standard '8nor did we conclude in blatt v commissioner supra as has been suggested that q a-9 may never apply to a corporate redemption in a divorce setting to the contrary as discussed above we concluded in blatt that ms blatt could have estab-- lished that she made a transfer of property to a third party on behalf of mr blatt within the meaning of q a-9 if she had shown that at the time she transferred to phyllograph her stock in that company she was acting in the interest of mr blatt she was acting as his representative or the transfer of her phyllograph stock to that corporation satisfied an obligation or a liability of mr blatt see id pincite n if we had concluded in blatt that as a matter of law qo a-9 and sec_1041 may never apply to a corporate redemption in a divorce setting we would have expressly so stated we did not the court_of_appeals for the ninth circuit in 981_f2d_456 9th cir held that q a-9 and sec_1041 applied in the case of a corporate redemption ina divorce setting although in blatt we expressed our disagreement with the holding in arnes v united_states supra our disagree- ment with that holding was not based upon our conclusion that as a matter of law q a-9 and sec_1041 may never apply in the case of a corporate redemption in a divorce setting see blatt v commissioner supra --- - to apply in the instant cases in order to determine whether ms read’s transfer of her mmp stock to mmp was a transfer of prop- erty by the transferring spouse ms read to a third party mmp on behalf of the nontransferring spouse mr read within the meaning of q a-9 we further hold that the primary-and- unconditional-obligation standard is not an appropriate standard to apply in any case involving a corporate redemption in a divorce setting in order to determine whether the transfer of property by the transferring spouse to a third party is on behalf of the nontransferring spouse within the meaning of q a-9 consequently we need not resolve the parties’ dispute over whether the primary-and-unconditional-obligation standard is satisfied as to mr read our holdings that the primary-and-unconditional-obligation standard is not an appropriate standard to apply under q a-9 in the instant cases or in any case involving a corporate redemp- tion in a divorce setting do not disturb constructive-dividend decisional law that law applies the primary-and-unconditional- obligation standard in order to determine in the case of a corporate redemption the tax consequences to a stockholder whose stock is not being redeemed and who is analogous to the nontrans-- ferring spouse under q a-9 and sec_1041 in the case of a corpo- rate redemption in a divorce setting constructive-dividend decisional law does not apply the primary-and-unconditional- obligation standard to determine the tax consequences to the stockholder whose stock is being redeemed and who is analogous to the transferring spouse under q a-9 and sec_1041 in the case of a corporate redemption in a divorce setting in contrast sec_1041 prescribes the tax consequences to the transferring spouse of a transfer of property by that spouse to the nontransferring spouse q a-9 addresses a transfer of property by the transfer- ring spouse to a third party on behalf of the nontransferring spouse in the case of such a transfer q a-9 and sec_1041 provide nonrecognition treatment to the transferring spouse whose stock is being redeemed provided that the other reguirements of continued - - in arguing that only satisfaction of the primary-and- unconditional-obligation standard as to mr read may satisfy the on-behalf-of standard in q a-9 petitioners seem to be suggesting that that temporary_regulation requires only that there be a transfer of property on behalf of the nontransferring spouse here mr read regardless who is making the transfer of prop- erty and to whom such property is transferred petitioners thus reverse the on-behalf-of standard in q a-9 to read as follows a transfer of property by a third party to the transferring spouse on behalf of the nontransferring spouse however q a-9 does not read that way and does not address such a transfer q a-9 continued q a-9 and sec_1041 are satisfied in the case of a corporate redemption in a divorce setting q a-9 and sec_1041 do not address the tax consequences to the nontransferring spouse whose stock is not being redeemed although q a-9 makes it clear that if that temporary_regulation applies the nontransferring spouse is deemed to have immediately transferred to a third party ina transaction that does not qualify for nonrecognition treatment under sec_1041 the property that such spouse is deemed to have received from the transferring spouse however neither q a-9 nor sec_1041 prescribes the tax consequences to the nontransfer- ring spouse as a result of that deemed transfer instead that tax treatment is determined by other provisions of the internal_revenue_code -'the inguiry under constructive-dividend decisional law as to whether a transfer of redemption proceeds by the redeeming corporation to the redeeming stockholder satisfies a primary and unconditional obligation of another stockholder is intended to determine whether such a transfer in substance is a payment by the redeeming corporation of a dividend to the stockholder whose stock is not being redeemed in an amount equal to such redemption proceeds and an immediate transfer of that same amount by such stockholder to the stockholder whose stock is being redeemed in payment for such stock - - addresses and requires a transfer of property by a transferring spouse to a third party on behalf of the nontransferring spouse the primary-and-unconditional-obligation standard does not require analysis of or even address the transfer that q a-9 requires be analyzed in order to determine whether that temporary_regulation applies provided that the other requirements of q a-9 and sec_1041 are satisfied the transfer that must be analyzed under constructive-dividend decisional law in order to determine whether the primary-and-unconditional-obligation standard is satisfied and whether a stockholder whose stock is not being redeemed received a constructive_dividend is the transfer by the redeeming corporation of the redemption proceeds to the stockholder whose stock is being redeemed in contrast the inguiry under q a-9 as to whether a transfer of prop- erty by the transferring spouse to a third party is made on behalf of the nontransferring spouse is intended to determine whether such a transfer in substance is a transfer by the transferring spouse of property to the nontransferring spouse and an immediate transfer of that property by the nontransferring spouse to the third party tt has been suggested that the primary-and-unconditional- obligation standard should be adopted as the only standard for determining whether the on-behalf-of standard in q a-9 is satis-- fied in the case of a corporate redemption in a divorce setting because the primary-and-unconditional-obligation standard has served well in distinguishing between the form and substance of corporate redemptions occurring in commercial settings if that suggestion is intended to mean that adoption of the primary-and- unconditional-obligation standard by the courts has eliminated or substantially minimized litigation over whether a stockholder continued - - the transfer that must be analyzed under q a-9 in the present cases and in any case involving a corporate redemption in a divorce setting in order to determine whether the on-behalf-of standard in q a-9 is satisfied and whether the stockholder whose stock is being redeemed here ms read the transferring spouse is not required to recognize gain_or_loss under sec_1041 is the transfer by that transferring spouse of the stock being redeemed property to the redeeming corporation here mmp a third party only if that transfer is made on behalf of the spouse whose stock is not being redeemed here mr read the nontransferring spouse does the transfer of property here mmp stock by the transferring spouse here ms read to a third party here mmp satisfy the on-behalf-of standard in q a-9 the judicially created primary-and-unconditional-obligation standard is well established in the tax law if in issuing q a-9 the treasury_department had intended that in the case of and solely in the case of a corporate redemption in a divorce setting the on-behalf-of standard may be satisfied only by continued whose stock is not being redeemed receives a constructive divi- dend as a result of the redemption of the stock of another stockholder we disagree with that suggestion the determination of whether the primary-and-unconditional-obligation standard has been satisfied is a fact-intensive inguiry which has engendered much litigation in which the parties have disputed whether that standard is met as to the stockholder whose stock is not being redeemed indeed in the instant cases the parties disagree over whether that standard is met as to mr read -- satisfaction of the primary-and-unconditional-obligation stan- dard the treasury_department would have expressly so indicated in q a-9 it did not we have rejected petitioners’ argument in these cases that only if the primary-and-unconditional-obligation standard is met as to mr read may the on-behalf-of standard in q a-9 be satis-- fied we shall now determine whether ms read’s transfer of her mmp stock to mmp was a transfer of property by the transferring spouse ms read to a third party mmp on behalf of the nontransferring spouse mr read within the meaning of q a-9 we shall make that determination by applying the meanings of the phrase on behalf of in q a-9 which we cited with approval and on which we relied in blatt v commissioner t c pincite we shall turn first to whether ms read’s transfer of her mmp stock to mmp satisfied a liability or an obligation of mr read one of the ways in which we indicated in blatt v commis-- sioner supra a transfer of property would be considered a transfer of property by the transferring spouse to a third party on behalf of the nontransferring spouse within the meaning of q a-9 we find that it did not under the divorce judgment mr read’s obligation to purchase ms read’s mmp stock for the 4tin support of their position that ms read’s transfer of her mmp stock to mmp does not satisfy the on-behalf-of standard in q a-9 mr read and mmp contend inter alia that mr read would not be obligated under the divorce judgment to purchase continued - - consideration stated in that judgment was owed t ms read ms read’s transfer of her mmp stock to mmp ie the transferring spouse’s transfer of property to a third party did not satisfy that obligation of mr read to ms read we shall now determine whether under the common ordinary meaning of the phrase on behalf of which we cited with approval and on which we relied in blatt v commissioner supra pincite ms read’s transfer of her mmp stock to mmp was a transfer of prop- erty by the transferring spouse to a third party on behalf of the nontransferring spouse within the meaning of q a-9 we indicated in blatt that the common ordinary meaning of the phrase on behalf of in q a-9 is in the interest of or as a representa-- tive of see id pincite quoting webster's ninth new collegiate dictionary applying that meaning to the facts in the instant cases we find that ms read was acting as mr read’ sec_24 continued ms read’s mmp stock unless he affirmatively elected to pur- chase the stock we find that contention of mr read and mmp to be contrary to the plain language of the divorce judgment and a strained and unreasonable construction thereof the divorce judgment obligated ms read to transfer to mr read and mr read to purchase from ms read her mmp stock no condition had to be satisfied under that judgment in order for those obligations to exist the divorce judgment did permit mr read to elect to have ms read transfer her mmp stock to mmp or to mmp’s esop instead of to him and to have mmp or mmp’s esop instead of him pur- chase that stock from her mr read decided to and did make that election during the trial in the marriage dissolution action that ms read instituted against mr read ms read and mr read continued -- - representative in transferring her mmp stock to mmp and that ms read was acting in the interest of mr read in making that transfer to mmp in that she was following and implementing mr continued reached an oral agreement referred to herein as the marital settlement agreement the florida court ratified and approved that agreement in the divorce judgment and ordered ms read and mr read to comply with the terms of that agreement the marital settlement agreement provided in pertinent part wife ms read agrees to convey to husband mr read all of her stock in mulberry motor parts both voting and non-voting and for such stock husband or at his option mulberry motor parts or the aesop sic plan of mulberry motor parts agrees to purchase such stock at its appraised value thus the marital settlement agreement required ms read to transfer her mmp stock to mr read and mr read to pay ms read a specified amount of consideration for that stock that agreement also gave mr read and only mr read the option of deciding that mmp or mmp’s esop instead of him pay that consid- eration to ms read tt has been suggested that ms read’s transfer of her mmp stock to mmp was in the interest of ms read and not in the interest of mr read in that ms read wanted or preferred to have mmp rather than mr read purchase her stock because in that event she would have received from mmp cash and mmp’s note that was guaranteed by mr read rather than merely cash anda note from mr read such a suggestion assumes that the financial condition of mmp was better than the financial condition of mr read at the time of ms read’s date transfer of mmp stock and that ms read wanted or preferred to have mmp rather than mr read purchase her mmp stock the record does not support either of those assumptions in fact we infer from the record that mr read’s financial condition at the time of ms read’s date transfer of mmp stock was better than the financial condition of mmp that is because under the divorce judgment the note that mr read was obligated to transfer to ms read along with a stated amount of cash in order to pay her for her mmp stock was not required to be guaranteed by mmp we also infer from the record that ms read did not want or prefer that continued -- - read’s direction as reflected in his election under the divorce judgment that she transfer her mmp stock to mmp absent mr read’s election ms read was obligated under that judgment to transfer that stock to mr read we hold that ms read's trans- fer to mmp of her mmp stock was a transfer of property by ms read to a third party on behalf of mr read within the meaning of q a-9 continued mmp instead of mr read purchase her mmp stock if ms read wanted or preferred to have mmp rather than mr read purchase her mmp stock we believe that ms read would have negotiated a property settlement that would have been reflected in the divorce judgment under which ms read would have been required to sell her mmp stock to mmp and mmp would have been required to give her cash and a note that was guaranteed by mr read or ms read would have been reguired to sell her mmp stock to mr read and mmp would have been required to guarantee the note that mr read issued to ms read along with cash in order to pay her for her mmp stock at a minimum if ms read wanted or preferred to sell her mmp stock to mmp instead of to mr read ms read would have negotiated a property settlement that would have been reflected in the divorce judgment under which ms read and not mr read would have been given the option of requiring that she sell her mmp stock to mmp and that mmp and not mr read give her cash and a note that was guaranteed by mr read the record in the instant cases is clear the only reason ms read transferred her mmp stock to mmp was because mr read wanted and directed her to do so by electing that she transfer that stock to mmp even assuming arguendo that ms read’s transfer of her mmp stock to mmp was in the interest of ms read and not in the interest of mr read a suggestion that is not supported and is in fact rejected by the record in the instant cases ms read was nonetheless acting as mr read’s representative---another common ordinary meaning of the phrase on behalf of ’--1in making that transfer to mmp that is because she was following and implementing mr read’s direction as reflected in his election under the divorce judgment that she transfer her mmp stock to mmp which stock absent mr read’s direction ms read was obligated to transfer to mr read -- -- we shall now consider whether ms read’s date transfer of mmp stock qualifies as one of the three situations described in q a-9 the first situation in q a-9 describes a transfer of property by the transferring spouse to a third party on behalf of the nontransferring spouse that is required by a divorce_or_separation_instrument we hold that ms read's transfer of her mmp stock to mmp was required by the divorce judgment and fits within the first situation described in q a-9 although that transfer was reguired by the divorce judgment only in the event that mr read elected that ms read transfer her mmp stock to mmp instead of to mr read once mr read made that election which he did prior to ms read’s transfer of her mmp stock to mmp that transfer was required by the divorce judgment we hold that q a-9 applies to ms read’s date transfer of mmp stock and that pursuant to sec_1041 no gain shall be recognized by ms read as a result of that trans- fer ’ mr read and mmp have indicated that if the court were to find as we have that sec_1041 applies to ms read’s trans- fer of her mmp stock to mmp the determinations in the respective notices issued to mr read and to mmp relating to that transfer should be sustained consequently those determinations have we have considered all of the contentions and arguments of mr read and mmp that are not discussed herein and find them to be without merit and or irrelevant to our resolution of whether q a-9 and sec_1041 apply to ms read’s transfer of her mmp stock to mmp -- - become moot and we shall not address them to reflect the foregoing and the concessions of the parties in these cases an order recharacterizing ms read's motion as a motion for partial summary_judgment and granting it will be is- sued and decision will be entered for petitioner in docket no an order denying mr read's and mmp's motion will be issued reviewed by the court cohen chabot parr whalen colvin foley vasquez and gale jj agree with this majority opinion - al --- colvin j concurring i agree with the majority that sec_1041 applies to the redemption of ms read’s stock and with its analysis supporting that result i also concur in the result as to mr read for reasons stated herein ti thesis sec_1041 and q a-9 apply broadly and prevent nonsymmetrical treatment of spouses the issue of whether or how sec_1041 applies to redemptions incident to a divorce has been difficult for private parties the government and the courts ’ despite this past difficulty this concurring opinion argues that sec_1041 can provide predictable and fair results with minimal risk of nonsymmetrical treatment of spouses based on two principles the first principle is a that congress intended sec_1041 to provide a broad rule_of nonrecognition for transfers of property between spouses and former spouses incident_to_divorce and b that sec_1_1041-1t q a-9 temporary income_tax regs q a-9 fed reg date fully implements that intent for economically equivalent transactions involving third parties including redemptions of stock held by one spouse the second principle is that if applied according to their terms sec_1041 and corresponding language in the penultimate sentence of q a-9 fully achieve the congressional purpose of compare eg 981_f2d_456 9th cir arnes i with 102_tc_522 arnes ii - -- avoiding whipsaw to the government in cases where sec_1041 a applies by specifying how we treat the nontransferring spouse ie deeming certain facts to have occurred that is under sec_1041 and the penultimate sentence of q a-9 ms read is deemed to have transferred her mmp stock to mr read and mr read is deemed to have transferred it to mmp to be redeemed thus if sec_1041 applies we are required to assume that the stock mmp redeemed was mr read’s not ms read’s application of these two principles will properly implement congressional intent both for sec_1041 in making transac- tions between spouses tax free and sec_1041 in insuring against whipsaw of the government for convenience in this concurring opinion i refer to this analysis as the sec_1041 b -q a-9 theory the dissenting opinion of judge ruwe emphasizes the impor- tance of achieving symmetrical results between spouses in the stock_redemption context if sec_1041 applies however it does not rely on the sec_1041 b -q a-9 theory instead it would apply what for convenience i will call the primary and unconditional obligation requirement theory derived from law developed before sec_1041 was enacted in this concurrence i contend that the sec_1041 b -q a-9 theory is as effective in preventing whipsaw in the stock_redemption context if sec_1041 applies as the primary and unconditional obligation -- - requirement theory and that the former is clearly incorporated in sec_1041 its legislative_history and q a-9 and the latter is not further i believe it is not for the courts to create barriers to qualifying for nonrecognition treatment under sec_1041 and q a-9 that were not provided by the congress or the secretary tl sec_1041 applies broadly to transactions between divorcing spouses no gain_or_loss is recognized on a transfer of property from an individual to a former spouse if the transfer is incident_to_divorce see sec_1041 the phrase incident to di sec_1041 and c provides as follows sec_1041 transfers of property between spouses or incident_to_divorce a general_rule --no gain_or_loss shall be recognized on a transfer of property from an individual to or in trust for the benefit of -- a spouse or a former spouse but only if the transfer is incident to the divorce c incident_to_divorce ---for purposes of subsection a a transfer of property is incident to the divorce if such transfer-- occurs within year after the date on which the marriage ceases or continued -- -- vorce is broad suggesting that congress intended sec_1041 to apply broadly see 981_f2d_456 9th cir arnes i 102_tc_77 that reading is corroborated by the report of the ways_and_means_committee accompanying enactment of sec_1041 in which states in pertinent part the committee believes that in general it is inappropriate to tax transfers between spouses this policy is already reflected in the code rule that exempts marital_gifts from the gift_tax and reflects the fact that a husband and wife are a single economic unit the current rules governing transfers of property between spouses or former spouses incident_to_divorce have not worked well and have led to much controversy and litigation often the rules have proved a trap for the unwary as for example where the parties view property acquired during marriage even though held in one spouse’s name as jointly owned only to find that the equal division of the property upon divorce trig- gers recognition of gain the committee believes that to correct these problems and make the tax laws as unintrusive as possible with respect to relations between spouses the tax laws governing transfers between spouses and former spouses should be changed h rept part pincite2 the ways_and_means_committee also said in its report this nonrecognition rule applies whether the transfer is for the relingquishment of marital rights for cash continued is related to the cessation of the marriage - -- or other_property for the assumption_of_liabilities in excess of basis or for other consideration and is intended to apply to any indebtedness which is dis- charged id pincite thus congress made clear that it intended sec_1041 a to apply broadly to transactions between divorcing spouses til o s a-9 extends sec_1041 broadly to transfers on behalf of the nontransferring spouse incident_to_divorce sec_1_1041-1t q a-9 temporary income_tax regs sec_1041 also applies broadly to transactions between nondivorcing spouses but that situation is not present in the instant case sec_1_1041-1t q a-9 temporary income_tax regs fed reg date provides q-9 may transfers of property to third parties on behalf of a spouse or former spouse qualify under sec_1041 a-9 yes there are three situations in which a transfer of property to a third party on behalf of a spouse or former spouse will qualify under sec_1041 provided all other requirements of the section are satisfied the first situation is where the transfer to the third party is regquired by a divorce_or_separation_instrument the second situation is where the transfer to the third party is pursuant to the written request of the other spouse or former spouse the third situation is where the transferor receives from the other spouse or former spouse a written consent or ratification of the transfer to the third party in the three situations described above the transfer of property will be treated as made directly to the nontransferring spouse or former spouse and the nontransferring spouse will be treated as immediately transferring the property to the third party the deemed transfer from the nontransferring spouse or former spouse to the third party is not a continued -- - extends sec_1041 to transfers of property by a spouse transferring spouse to a third party on behalf of a former spouse nontransferring spouse to qualify the transfer must be on behalf of the transferring spouse the temporary regula- tions do not define or limit the term on behalf of q a-9 as applied to divorcing spouses properly implements sec_1041 because it recognizes that sec_1041 applies not only to transfers to the other spouse but also to transfers to a third party on behalf of that other spouse like sec_1041 this facilitates the division of a marital estate incident_to_divorce without taxation to the spouse who is with- drawing assets from the marital estate there is no suggestion in the regulations that the on behalf of language has any purpose other than to make q a-9 apply as broadly as sec_1041 does e to transactions made to divide a marital estate the language of sec_1041 its legislative_history and the language of q a-9 clearly support the view of the majority that the on behalf of standard in q a-9 is satisfied if the transfer was in the interest of or was made by the transferring spouse acting as a representative of the nontransferring spouse majority op pp continued transaction that qualifies for nonrecognition of gain under sec_1041 a7 - i disagree with the contention in judge ruwe’s dissenting opinion pincite that q a-9 applies to redemptions only if the redemption satisfies a primary and unconditional obligation of the spouse whose stock is not being redeemed as stated by the majority that requirement is not contained in or implied by the phrase on behalf of i also disagree with the contention in the dissenting opinion of judges laro and marvel that q a-9 does not apply to corporate redemptions or that it applies only to transfers to a third party to satisfy an obligation owed by the nontransferring spouse to the third party by their terms sec_1041 and q a-9 apply broadly to transfers of property incident_to_divorce which are on behalf of the other nontransferring spouse by choosing the on behalf of lan- guage the secretary appropriately defined eligibility for sec_1041 broadly as did congress qé a-9 does not state that it does not apply to redemptions or that it applies only to transfers to a third party to satisfy an obligation owed by the nontransferring spouse to the third party where the secretary uses broad language to provide eligibility for a rule_of nonrecognition we need not and ought not supply our own excep- tions application of sec_1041 and q a-9 to redemptions furthers the legislative purpose of making a transfer of property incident_to_divorce tax free in the case of a closely_held_corporation owned by a married couple in his dissent p -- - judge ruwe points out that in the instant case and prior cases the commissioner has consistently treated q a-9 as applying to divorce-related corporate redemptions and this position has been adopted by the u s court_of_appeals for the ninth circuit in 981_f2d_456 9th cir iv sec_1041 b and q a-9 provide for avoidance of whipsaw sec_1041 is intended to ensure that the government is not whipsawed as a result of inconsistent positions taken by former spouses sec_1041 provides that in the case of any transfer of property to which sec_1041 applies the transferee is treated as if he or she acquired the property by gift and the transferee takes the basis of the transferor the ways_and_means_committee report accompanying enactment of sec_1041 clearly stated the importance of avoiding whipsaw in cases where sec_1041 applies that committee report sec_1041 provides sec_1041 transfer treated as gift transferee has transferor’s basis --in the case of any transfer of property described in subsection a -- for purposes of this subtitle the property shall be treated as acquired by the transferee by gift and the basis of the transferee in the property shall be the adjusted_basis of the transferor states furthermore in divorce cases the government often gets whipsawed the transferor will not report any gain on the transfer while the recipient spouse when he or she sells is entitled under the davis_rule to compute his or her gain_or_loss by reference to a basis equal to the fair_market_value of the property at the time received thus uniform federal_income_tax consequences will apply to these transfers notwithstanding that the property may be subject_to differing state property laws h rept part supra pincite2 as quoted supra note the penultimate sentence of q a-9 implements the antiwhipsaw rule_of sec_1041 by providing in the three situations described above the transfer of property will be treated as made directly to the nontransferring spouse or former spouse and the nontransferring spouse will be treated as immediately transferring the property to the third party thus under sec_1041 and q a-9 the following is deemed to occur if sec_1041 applies to ms read she is deemed to transfer her stock to mr read mr read is deemed to immediately transfer the stock to mmp pursuant to the divorce judgment mr read elected for mmp to pay ms read and to issue a promissory note to her however despite these actual facts because in my view sec_1041 a applies here sec_1041 and q a-9 specifically require us to analyze this transaction as if the stock were mr read’s at the time of the redemption v should the payment by mmp to ms read be deemed to be made to mr read sec_1041 and q a-9 do not state that the payment from mmp to ms read is deemed to be made to mr read and then to ms read ’ however it is undisputed that because in my view sec_1041 applies under sec_1041 and q a-9 we are to treat ms read’s stock redeemed by mmp as if it were mr read’s a stock owner would normally have the right to receive payment made in redemption of his or her stock since we are required to treat mr read as the owner of ms read’s mmp stock it is thereby implied that we must attribute normal rights of stock ownership to him thus to give reasonable effect to see arnes i f 2d pincite where the u s court_of_appeals for the ninth circuit used an analysis similar to the sec_1041 b -oq a-9 described here that is the court treated the transferring spouse as having constructively transferred her stock to the nontransferring spouse who then transferred the stock to the corporation ’ if sec_1041 and q a-9 apply the transferring spouse recognizes no gain_or_loss under sec_1041 on that spouse’s actual or deemed transfer of property to the nontransferring spouse this is true even if the transferring spouse receives or is deemed to receive consideration from the nontransferring spouse for that property see sec_1_1041-1t q a-10 temporary income_tax regs under sec_1041 the nontransferring spouse here mr read who actually receives property or is deemed to receive property from the transferring spouse has a bassis in such property equal to the adjusted_basis thereof in the hands of the transferring spouse this is true even if the nontransferring spouse pays or is deemed to pay the transferring spouse consideration for that property see sec_1_1041-1t q a-11 temporary income_tax regs fed reg date - - sec_1041 and the penultimate sentence of q a-9 we should treat mr read as having a right to receive any payment mmp makes in redemption of what is deemed to be his stock and thus he constructively receives any payment mmp makes in redemption of that stock to ms read under general income_tax principles see 281_us_111 vi how is mr read taxed mr read and mmp indicated in their motion their belief that the primary and unconditional standard applies to sec_1041 and that if sec_1041 applies to ms read’s redemption of her mmp stock respondent’s determinations in the notices of defi- ciency issued to mr read and mmp should be sustained i concur with that result but for different reasons under the analysis of sec_1041 and q a-9 herein mr read would be taxed on the constructive_dividend he received on the transfer of ms read’s stock to mmp not as a result of his litigating position in this case since mr read constructively received mmp’s payment to ms read he is taxable on it as a dividend under sec_302 sec_301 and sec_316 vii primary and unconditional standard a payment to a shareholder in redemption of stock is a constructive_dividend to the remaining stockholder if the non- mmp had earnings_and_profits well in excess of the redemption payments during the years in issue - - redeeming stockholder had a primary and unconditional obligation to buy the stock see eg arnes ii 101_tc_593 727_f2d_857 9th cir the dissenting opinion of judge ruwe advocates the primary and unconditional obligation requirement theory to avoid whipsaw see judge ruwe’s dissent pp under that view the remain- ing shareholder here mr read would be taxed only if the transfer of the redemption proceeds satisfied a primary and unconditional obligation of his to ms read because under that analysis the remaining shareholder would often escape taxation to achieve symmetry judge ruwe would permit the departing share- holder here ms read to exclude gain_or_loss under sec_1041 only if the transfer of the redemption proceeds satisfied a primary and unconditional obligation of the remaining share- holder if followed consistently in cases where sec_1041 a applies both the sec_1041 b -q a-9 theory and the primary and unconditional obligation reguirement theory would ensure symmetry thus i disagree with the suggestion that to achieve symmetry in the treatment of spouses we need to apply the primary and unconditional obligation requirement theory to determine eligibility for sec_1041 or q a-9 congress clearly specified in sec_1041 that if sec_1041 a -- - applies we must treat the nontransferring spouse as the owner of the transferring spouse’s property thus assuming sec_1041 applies the question here is not how mr read is taxed if mmp redeems ms read’s stock even though those are the actual facts instead the question is how mr read is taxed if mmp redeems his stock because those are the deemed facts for all purposes under the income_tax sec_1041 the secretary specifically implemented that concept in the penultimate sentence of q a-9 as a result symmetry is achieved without the need to apply the primary and unconditional obligation requirement to the nontransferring spouse further it is not for the courts to create their own barriers to qualifying for nonrecognition treatment under sec_1041 and q a-9 not provided by con- gress or the secretary e g imposition of a primary and uncon- ditional obligation requirement or creation of an exception for redemption transactions viii conclusion i concur because the analysis of the majority is fully consistent with the analysis in this concurring opinion parr whalen foley vasquez and gale jj agree with this concurring opinion - - ruwe j dissenting i disagree with the standards that the majority opinion uses for determining whether ms read’s transfer of stock to mmp gualifies as a transfer to which sec_1041 applies when considering whether sec_1041 can be applied to a transfer to a third party it is necessary to examine the tax consequences for both spouses this is because symmetrical treatment of both spouses is necessary to achieve the purposes of sec_1041 the transaction in issue in this case is ms read’s transfer of stock to mmp this transaction was a corpo- rate redemption that left mr read in control of mmp a substan- tial body of case law has developed regarding the tax results of such redemptions long before the enactment of sec_1041 courts were required to deal with the tax ramifications of a corporate redemption of one shareholder’s stock that left a remaining shareholder in control of the redeeming corporation from one perspective such a redemption conferred a control benefit on the remaining shareholder based on this the commissioner argued that the corporation’s redemption payment constituted a construc-- tive dividend to the remaining shareholder on the other hand the postredemption value of the corporation was diminished by the distribution of corporate funds used in the redemption suggest-- ing that the remaining shareholder may have received no real - -- benefit from the redemption from this latter perspective the redemption simply reflects a shareholder's sale of stock to the corporation given these considerations courts have consis-- tently held that a corporate distribution to redeem one share- holder’s stock could be treated as a corporate dividend to the remaining shareholder only if the redemption transaction satis-- fied the remaining shareholder’s primary and unconditional personal obligation to purchase the stock see 102_tc_522 arnes ii edler v commis-- sioner tcmemo_1982_67 affd 727_f2d_857 9th cir as we explained in edler the issue is whether the stock_redemption resulted ina constructive_dividend to petitioner we are faced with the rule that where a corporation redeems stock which its re- maining shareholder was obligated to buy the remaining shareholder receives a constructive_dividend 164_f2d_462 4th cir however the rule_of wall has been limited to those circumstances where the obligation of the purchasing shareholder is both primary and unconditional 57_tc_781 38_tc_316 if on the other hand the corporation redeems stock which the remaining shareholder was not obligated to buy no construc-- tive dividend is received by that shareholder 19_tc_13 applying the above rules certain disparate tax conse- quences become apparent when two shareholders own a corpo- ration there is no practical economic difference between using a stock_redemption and using a dividend distribution to the remaining shareholder to fund the acquisition of the selling shareholder’s stock nevertheless the tax conse- quences to the remaining shareholder are profoundly differ- ent a knowledgeable shareholder could negotiate a redemp- tion by the corporation and escape harsh tax consequences to himself whereas a less knowledgeable shareholder might unwilling commit himself to effect the purchase and be -- - threatened with an unintended dividend except for the tax consequences the shareholder’s economic positions are identical obviously in this area of the tax law the form employed is critical and taxpayers are free to choose the form most beneficial to themselves it is against this background that the rule_of wall has been limited to circum-- stances where the obligation which has been discharged is both primary and unconditional fn refs omitted if a redemption satisfied a primary and unconditional obligation of the remaining shareholder the remaining share- holder was generally treated as having received a constructive_dividend see 101_tc_593 while the primary and unconditional standard is often referred to as determinative of whether a redemption of one shareholder’s stock is a constructive_dividend to the remaining shareholder thi sec_1s an oversimplification the standard really determines only whether a redemption of one shareholder’s stock should be treated as a corporate distribution to the remaining share- holder ’ while treating a redemption of one shareholder’s stock as a corporate distribution to the remaining shareholder has generally resulted ina finding that the remaining shareholder received a constructive_dividend dividend treatment also depends 'the constructive treatment of the participants in a redemption that satisfied the primary and unconditional obligation of the remaining shareholder under pre-sec -1041 case law would be the same as that prescribed in q a-9 temporary income_tax regs fed reg date ie the transferring shareholder would be treated as transferring stock to the remaining shareholder who would be treated as transferring the stock to the redeeming corporation in return for the corporate distribution - - on the existence of corporate earnings_and_profits ’ the primary and unconditional standard is applicable to stock redemptions required by divorce judgments for example in edler v commissioner supra a divorce settlement and judgment required a redemption of the wife’s corporate shares leaving the husband in control of the corporation this court and the court_of_appeals for the ninth circuit found that the redemption required by the modified settlement and judgment did not relieve the husband of a primary and unconditional obligation to purchase his wife’s stock and as a result the husband did not receive a constructive_dividend in edler the original settlement and judgment required the husband to pay his wife for her stock interest the court_of_appeals for the ninth circuit noted that had the original divorce settlement and judgment remained in effect the corporation’s redemption payment to the wife would have satisfied the husband’s obligation and would have been treated as a dividend to the husband see edler v commis-- sioner f 2d pincite court opinions dealing with taxable years prior to the enactment of sec_1041 generally do not discuss the tax treatment of the stockholder whose stock was being redeemed no one questions that mmp had earnings_and_profits in excess of the redemption payments mmp’s income_tax returns for the relevant years show unappropriated retained earnings in excess of dollar_figure million -- - this was because there was no question that the person whose stock was being redeemed would be taxable on any gain on the sale of his or her stock regardless of who paid for the stock or whether the remaining shareholder was treated as having received a dividend the enactment of sec_1041 introduced a broad rule_of nonrecognition for transfers of property between spouses and former spouses incident_to_divorce sec_1041 makes no reference to transfers to third parties however temporary regulations issued under sec_1041 explain the circumstances in which a spouse’s transfer to a third party qualifies as a transfer to which sec_1041 applies see sec_1_1041-1t q a-9 temporary income_tax regs q a-9 fed reg date q a-9 does not specifically address a spouse’s transfer of stock to the issuing_corporation as part of a corporate redemp-- tion that was required by a divorce judgment however in this case and prior cases the commissioner has consistently treated q a-9 as applying to divorce-related corporate redemptions and this position has been adopted by the court_of_appeals for the ninth circuit in 981_f2d_456 9th cir see also hayes v commissioner supra and craven v united_states aftr 2d ustc par n d ga in which q a-9 was applied to divorce-related redemptions of stock one of the purposes for enacting sec_1041 was to prevent divorcing spouses from whipsawing the commissioner by taking inconsistent positions on divorce-related transfers in 102_tc_77 we explained in part congress enacted sec_1041 to replace the holding in 370_us_65 that a divorce-related transfer of property in exchange for the release of marital claims resulted in recogni- tion of gain to the transferor h rept pincite2 before the enactment of sec_1041 as a result of davis the transferring former spouse was taxable on a divorce-related transfer of appreciated_property to his or her former spouse and the recipient received a basis in the transferred property equal to its fair_market_value on the date of transfer united_states v davis supra thus the government was whipsawed if such a transferor did not report any gain on a transfer of appreciated_property accordingly in congress enacted sec_1041 to remedy this whipsaw h rept pincite2 fn ref omitted q a-9 specifies the way a transaction will be treated for both spouses and requires symmetrical results as to those spouses in order to prevent a whipsaw under q a-9 if a spouse’s transfer to a third party qualifies for nonrecognition under sec_1041 then she is treated as if she transferred the property to the other spouse nontransferring spouse section tt has been suggested that q a-9 can never apply to a corporate redemption if this were true a corporate redemption of one spouse’s stock that satisfied the other spouse’s primary and unconditional obligation to purchase that stock could result in both spouses being taxed on the redemption such a result is contrary to the objective of sec_1041 the commissioner’s position and existing case law -- - b provides that the nontransferring spouse’s basis in the property is the same as the transferring spouse’s basis the nontransferring spouse is then treated as having transferred the property to the third party thus if q a-9 applies to this case ms read will be treated as having transferred her stock to mr read and mr read’s basis in the transferred stock will be the same as ms read’s--zero mr read will then be treated as having transferred the stock to mmp it follows that the redemp- tion proceeds should be treated as having been received by mr read who in turn is treated as having paid ms read pursuant to q a-9 a transfer of property to a third party required by a divorce_or_separation_instrument will be treated as qualified under sec_1041 only if it is made on behalf of the nontransferring spouse in order to accomplish this regula- tory scheme and the statutory goal of eliminating whipsaws the phrase on behalf of must have the same meaning when applied to each of the divorcing spouses there is nothing in q a-9 to indicate that the commissioner was attempting to or could change the existing standards for determining whether a corporate redemption of one shareholder’s stock could be treated as a distribution to the remaining share- holder indeed q a-9 is a temporary_regulation intended only to effect the legislative objective of sec_1041 nothing in sec_1041 or its legislative_history suggests that it was -- - intended to displace longstanding principles used in determining whether a corporate redemption of one shareholder’s stock could be treated as a distribution to the remaining shareholder in arnes ii we specifically held that the enactment of sec_1041 did not change the primary and unconditional standard for deter- mining whether a redemption of one spouse’s stock can result ina constructive_dividend to the other spouse in arnes ii t c pincite we stated the rationale of edler the primary and unconditional test was not affected by the enactment of sec_1041 and the case is still the law of the court_of_appeals for the ninth circuit to which this case is appealable that is undoubtedly why all the parties in the instant case presented their arguments as if the primary and unconditional obligation standard applied for purposes of determining the inextricably related questions of whether q a-9 applies and whether the redemption of ms read’s stock should be treated as a dividend to mr read it has been suggested that arnes ii did not discuss the impact that sec_1041 and q a-9 would have on the spouse who was the remaining shareholder however as indicated above in arnes ii we held that enactment of sec_1041 had no impact on the tax treatment of the spouse who was the remaining shareholder after a divorce-related redemption of the other spouse’s stock this issue was clearly before the court as shown by the various concurring and dissenting opinions in arnes ii -tt has also been suggested that the primary and unconditional standard has no applicability to sec_1041 and qé a- because the primary and unconditional standard focuses on the continued -- - respondent’s position is that mr read had a primary and unconditional obligation to purchase ms read’s stock and that the redemption of ms read’s stock a necessary and integral part of which was her transfer of stock to mmp satisfied mr read’s obligation mr read mmp and ms read agree that the primary and unconditional obligation standard should be determinative of whether ms read’s transfer of stock was on behalf of mr read within the meaning of q a-9 on this point the parties are all correct the primary and unconditional standard is still con- trolling law for determining whether a divorce-related redemption distribution to one shareholder spouse can ever be a dividend to the remaining shareholder spouse see arnes ii supra because symmetrical treatment is required by sec_1041 it should be obvious that the same primary and unconditional standard must also be the standard for determining whether q a-9 applies to a continued purpose served by the corporate distribution to redeem stock rather than the spouse’s transfer of stock to the corporation however a redemption distribution to a spouse that satisfies a primary and unconditional obligation of the other spouse is completely dependent on the transfer of stock to the redeeming corporation if a redemption distribution that satisfies a primary and unconditional obligation of the nontransferring spouse is totally dependent on the transfer of stock being redeemed then the transfer of stock to the redeeming corporation is an integral part of satisfying the primary and unconditional obligation of the nontransferring spouse ‘ms read and respondent argue that the redemption satisfied mr read’s primary and unconditional obligation while mr read and mmp argue that mr read was never primarily and unconditionally obligated to purchase ms read’s stock_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 sec_1041 see 981_f2d_456 9th cir ’ 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 sec_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 sec_1041 relief to the transferring spouse this in turn opened the possibility that the commissioner could be whipsawed however a total of of the 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 sec_1041 and q a-9 required symmet-- ‘the 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 - - rical results with respect to both spouses the majority now holds that the on behalf of requirement in q a-9 is satisfied by a standard that is substantially lower and less precise than the primary and unconditional obligation test of edler v commissioner tcmemo_1982_67 and arnes ii the majority holds that the on behalf of test is satisfied if the transfer was in the interest of or was made by the trans- ferring spouse acting as a representative of the nontransferring spouse this standard presumably could be met if the nontransferring spouse received some general benefit or if the obligation of the nontransferring spouse was either second- ary conditional or both based on this lower standard the majority holds that ms read is entitled to rely on sec_1041 and therefore need not recognize gain on the transfer of her stock i believe this is an error one of the problems with simply applying the dictionary meaning of on behalf of to a divorce-related corporate redemp- tion is that the redemption will usually in a general sense be in the interest of both the spouse whose stock is redeemed and the spouse who is the remaining shareholder for example the ‘tt has also been suggested that sec_1041 and q a-9 apply to all divorce-related transactions that are made to divide a marital estate this approach is more encompassing than the majority’s approach and is contrary to established precedent see 167_f3d_1240 9th cir 102_tc_77 -- - 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 167_f3d_1240 9th cir 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 pincite 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 -- - spouse had a primary and unconditional obligation to purchase the redeemed stock the majority’s error is compounded by concluding that mr read must recognize a constructive_dividend but failing to give any legal explanation for this result how could mr read have a constructive_dividend in light of our prior court-reviewed opinion in arnes ii where we said that sec_1041 made no change in prior_law and held that a redemption of one spouse’s stock cannot result in a constructive_dividend to the other stockholder spouse unless the redemption satisfied the latter’s primary and unconditional personal obligation to purchase the redeemed shares this is a problem that the majority refuses to confront instead the majority simply states that mr read and mmp indicated that if the court were to find that sec_1041 applies to ms read then respondent’s determinations regarding mr read and mmp should be sustained the majority’s attempt to extricate itself from this dilemma by latching onto an isolated statement in the motion filed by mr read and mmp is unjustified by the record and fundamentally unfair the indication by mr read and mmp is taken out of con- text the full argument made by mr read and mmp is that q a-9 cannot apply to a corporate redemption unless the redemption satisfies a primary and unconditional obligation of the nontransferring spouse they indicate that if this standard is -- - met and q a-9 applies then respondent’s determinations should be sustained to take the latter statement out of context after having rejected the argument on which it is predicated is totally unwarranted in any event we should never rely upon and apply a party’s statement of law that is contrary to a holding contained in a prior court-reviewed opinion of this court that is still binding precedent ’ no matter how convenient it may be to avoid unreconcilable differences in our opinions justice demands that we decide issues of law that control the outcome of cases that come before us today’s majority opinion puts in place one legal standard for determining whether a transferring spouse receives the benefits of sec_1041 while leaving in place the differ- ent and more stringent standard of arnes ii for purposes of determining whether the corresponding tax burdens can be placed on the nontransferring spouse this opens the door in future cases for both spouses to escape the tax impact of a divorce- related transfer of appreciated_property and therefore contra- venes one of the purposes of sec_1041 the question we should ask and answer is whether mmp’s redemption of ms read’s stock satisfied a primary and uncondi- tional obligation of mr read if the answer is yes we should hold that q a-9 applies mr read had a constructive_dividend the majority does not purport to overrule or modify arnes il -- - and ms read gets the benefit of sec_1041 if mr read did not have a primary and unconditional obligation to purchase ms read’s stock then we should hold that q a-9 does not apply the redemption of ms read’s stock did not result in a constructive_dividend to mr read and ms read’s transfer of stock to mmp should be treated as a simple redemption resulting in a taxable capital_gain to ms read beghe j agrees with this dissent halpern j dissenting i introduction on date ms read disposed of all of her shares of stock in mulberry motor parts inc the shares and mmp respectively by transferring the shares to mmp the transfer in consideration thereof mmp paid ms read dollar_figure and agreed to pay her an additional dollar_figure in installments with inter-- est ms read’s adjusted_basis in the shares was zero and she realized a gain on the transfer see sec_1001 that gain must be recognized to her unless some nonrecognition_provision applies see sec_1001 ms read relies on sec_1041 a to avoid the recognition of gain sec_1041 provides sec_1041 general_rule --no gain_or_loss shall be recognized on a transfer of property from an individual to or in trust for the benefit of -- a spouse or a former spouse but only if the transfer is incident to the divorce ms read is an individual and she claims that no gain is recog- nized to her since she transferred the shares property to her former spouse mr read incident to their divorce mr read disagrees that the transfer was to him ms read and mr read agree that the guestion of whether the transfer was to him should be answered by determining whether he had a primary and uncondi- ‘the term incident to the divorce is defined in sec_1041 and that definition is not in issue here -- jo - tional obligation to purchase the shares the majority holds that such an inquiry is inappropriate i disagree i further disagree with what seems to me to be the majority’s evocation of the principles of 324_us_331 to determine whether ms read sold the shares to mr read il bootstrap_acquisitions mr read acquired virtually complete ownership of mmp without expending any of his own funds he did so by arranging for mmp to redeem the shares such an acquisition where the acquirer uses funds of the corporation to aid in his acquisition of control 1s sometimes referred to as a bootstrap acquisi- tion a part owner of a corporation can use the corporation’s funds to acquire complete ownership of the corporation in one of two ways one he can arrange for the corporation to purchase the seller’s shares two he can purchase the seller’s shares and cause the corporation to redeem those shares from him there is no practical difference between those alternatives in both cases the seller receives the same amount and the remaining owner sometimes the buyer becomes the sole owner of the corporation whose assets are reduced by the same amount it is well settled however that the difference in form between those alternatives may result in different income_tax consequences at least for the buyer as professors bittker and lokken put it - 7jl1- if the buyer purchased all of the seller’s stock and later recouped some of the cash outlay by causing the corporation to redeem part of the newly acquired stock the redemption distribution would be a dividend to the extent of earnings_and_profits because as a pro_rata distribution it could not meet the standards of dollar_figure dollar_figure b or the buyer however avoids dividend consequences where the redemption is from the seller unless the buyer makes the mistake of undertak- ing a personal obligation to purchase the shares before the corporation agrees to redeem them bittker lokken federal taxation of income estates gifts par pincite 2d ed although the form of the acquisition may be tailored to suit the buyer’s tax status a corporate buyer may prefer the dividend treatment that given sufficient earnings_and_profits generally would accompany the redemption of shares purchased from the seller once it is tailored the buyer is stuck with the chosen form in an early leading case 164_f2d_462 4th cir the taxpayer contracted to purchase stock from a co-shareholder agreeing to make a cash downpayment and to deliver his notes for the remainder of the purchase_price the taxpayer made the downpayment and received the stock which he transferred to two trustees to be held by them as security for the notes after paying the first note he transferred his equity in the stock to the corporation and caused it to pay the remaining notes as they became due the court_of_appeals for the fourth circuit had no difficulty in finding that the taxpayer’s transfer of his equity to the corporation in consideration of the - j2 - corporation’s assumption of his liability was a redemption of the underlying stock and that the redemption and the payment of the remaining owner’s note that became due in the year in question were essentially equivalent to the distribution of a taxable dividend see id in a variation on wall in 363_f2d_724 8th cir the court_of_appeals for the bighth circuit held that if a buyer is subject_to an executory pri- mary and unconditional obligation to purchase the shares of the seller but instead causes the corporation to purchase those shares the purchase results in a constructive distribution to the buyer because it discharges his obligation in sullivan the court_of_appeals found that after the transaction was complete the taxpayer’s personal obligation to purchase the stock had been discharged the taxpayer owned all of the outstanding shares of stock of the corporation the corpora- tion’s assets were decreased by the amount_paid to the seller for his stock and that stock was held by the corporation as treasury_stock see id pincite although the court_of_appeals is not explicit on the point it appears that it considered the taxpayer as having constructively received the stock from the seller which stock the taxpayer then transferred to the corpora- tion in consideration of the corporation’s constructive distribu- tion to him in redemption of that stock the court_of_appeals -- - rejected the taxpayer’s argument that he had received a distribu- tion in redemption of shares that was a distribution in full payment in exchange for the stock and not a redemption essen- tially equivalent to a dividend see id pincite thus if a buyer wishes to accomplish a bootstrap acquisi- tion the buyer once having put the wall type format into legally enforceable form cannot avoid the tax consequences of a redemption from him of the seller’s stock by having the corpora- tion pay the seller directly nevertheless if the corporation simply agrees to redeem the seller’s stock and pays for the stock in installments over time and the payments do not discharge any obligation of the remaining owner the payments do not constitute constructive distributions to the remaining owner see 19_tc_13 that is true even if the remaining owner guarantees performance by the corporation pledges his shares as security for the deferred payments or agrees to buy the shares if the corporation defaults see id buchholz mortuaries inc v commissioner tcmemo_1990_269 revrul_69_608 1969_2_cb_42 situation the logic of the bootstrap acquisition cases leads to the conclusion that where the buyer has already purchased the seller’s stock as in wall v united_states supra or has a primary and unconditional obligation to do so as in sullivan v united_states supra the transfer of that stock to the corpora- -- tion is in satisfaction of the buyer’s obligation to surrender for redemption stock that actually in wall or constructively in sullivan he had purchased from the seller any transfer by the seller directly to the corporation would under that logic be on behalf of the buyer contrariwise if the remaining shareholder has not purchased the seller’s stock and has no obligation to do so as in edenfield v commissioner supra the transfer to the corporation should not be viewed as on the remaining shareholder’s behalf since there is no practical difference between the wall and edenfield type formats the choice of form by the parties to the transaction plays a dominant role in determining the income_tax consequences that will follow and the crucial distinction is whether the corporation satisfies a legal_obligation of the remaining shareholder to purchase the redeemed stock no matter how close a taxpayer comes to under- taking a legal_obligation to purchase the redeemed stock the wall principle should not apply unless that obligation was in fact undertaken thus in s k ames inc v commis46_bta_1020 we construed a contract to purchase stock that provided that the taxpayer would purchase or cause to be purchased the stock we held that the promise to purchase or cause to be purchased provided several methods for satisfying the obligation created under the contract and therefore the taxpayer incurred no absolute obligation to purchase the stock - j5 - see also buchholz mortuaries inc v commissioner supra contract accorded taxpayers or their assigns right to pur- chase stock purchase by corporation assignee did not discharge personal and primary obligation of taxpayers bunney v commis- sioner tcmemo_1988_112 similar in 37_tc_882 the taxpayer negotiated to buy all of the capital stock of a corporation the purchase agreement contained the following paragraph buyer is to have the right to assign this agree- ment to a corporation thereby releasing buyer there- from and substituting such corporation in the place of buyer under this agreement with the same force and effect as if this agreement were originally made with such corporation provided that such corporation shall by writing agree to be bound by all of the terms covenants and conditions of this agreement id pincite in kobacker we held that the taxpayer had assumed no personal obligation to purchase the stock under that contract see id pincite the fact that a bootstrap acquisition is incident toa divorce has no bearing on whether the buyer for convenience husband and seller wife are held to the form upon which they have agreed if the husband’s obligation to purchase the wife’s share sec_1s primary and unconditional then he is in constructive receipt of those shares notwithstanding that on his behalf the wife has transferred them to the corporation if the husband does not have a primary and unconditional obligation to purchase -- - the wife’s shares then he is not in constructive receipt of those shares and the wife’s transfer of those shares to the corporation is not on his behalf if pursuant to sec_1041 the wife gains a tax advantage from the form settled upon by the parties or loses a tax advantage if she realizes a loss on the disposition of the shares then so be it the bootstrap acquisition rules are fairly well settled and give the parties the flexibility to negotiate a mutually acceptable format for the wife to dispose_of her shares those rules are consis-- tent with the construction of sec_1041 set forth in sec_1_1041-1t temporary income_tax regs fed reg date i see no reason why the primary and unconditional analysis is inappropriate to an analysis of the tax consequences in this and similar cases tit facts at hand by agreement incorporated into the divorce judgment ms read was obligated to sell the shares to mr read or at his election mmp or the esop plan of mmp the esop mr read mmp or the esop as the case would be was obligated to purchase the shares payment for the shares was to be made in installments with ms read retaining a security_interest in the shares mr read was to guarantee payment of the installments if he elected to have mmp or the esop make the payments subsequent to the divorce mr read elected to have mmp purchase the shares - mr read ms read and one other individual constituted the board_of directors of mmp the board by unanimous written consent the board consented to mmp’s purchase of the shares subsequently ms read and mmp entered into a stock purchase agreement and pursuant thereto mmp acquired the shares from her since mr read had the right to assign his obligation to purchase the shares i do not believe that his obligation to purchase the shares was primary and unconditional the facts here are similar to the facts in s k ames inc v commis-- sioner supra buchholz mortuaries inc v commissioner supra and bunney v commissioner supra therefore i would find that the transfer was to mmp and not to or on behalf of mr read the majority finds that the transfer did not satisfy any liability or obligation of mr read’s nevertheless the major- ity finds that ms read was in effect acting as mr read’s agent in transferring the shares to mmp majority op pp without citing any authority the majority appears to be relying on the principles of 324_us_331 where a corporation was taxed on gain ona sale by shareholders of property distributed by the corporation because the corporation went so far toward the sale before the distribu- tion that the sale was in substance made by the corporation in court holding co the supreme court said the incidence of taxation depends upon the substance of --- - a transaction the tax consequences which arise from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal_title rather the transaction must be viewed as a whole and each step from the commencement of nego- tiations to the consummation of the sale is relevant a sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title to permit the true nature of a transaction to be disguised by mere formalisms which exist solely to alter tax liabili- ties would seriously impair the effective administra-- tion of the tax policies of congress id pincite fn ref omitted the majority appears to be applying court holding co principles to determine that in substance ms read sold the shares to mr read although on his behalf she transferred them to mmp that is an inappropriate analysis in the bootstrap acquisition area where there is no practical difference between the two ways of accomplishing the bootstrap acquisition and the only relevant distinction is form which is manifest by legal rights and duties see the discussion by professors bittker and lokken pincite bittker lokken federal taxation of income estates gifts par pincite 2d ed iv conclusion since i believe that ms read has failed to prove that the transfer was to mr read i would hold sec_1041 inapplica-- ble and hold that she recognized gain on the transfer mr read of course had no item_of_gross_income on account of the trans- fer wells and beghe jj agree with this dissent - jq - beghe j dissenting as a long-time continuing proponent of the view that the on behalf of standard of q a-9 applying sec_1041 should be equated with the primary and uncondi- tional obligation standard of traditional redemption tax law see 102_tc_522 beghe j concurring 102_tc_77 beghe j concurring i have joined the dissenting opinions of judges ruwe and halpern however i write on to express my own views of how the cases of mr and mrs read should be decided and to try to provide some perspective on the variety of expressed views about the decisions and their governing rationales two preliminary observations are in order first it 1s not accurate to say as does the majority opinion respondent’s role here is that of a stakeholder majority op pincite mr read and mmp have much more at stake than mrs read because the combined deficiencies of mr read and mmp substantially exceed mrs read’s deficiencies mrs read ' defined by black’s law dictionary 7th ed as a disinterested third party who holds money or property the right to which is disputed between two or more parties emphasis supplied the writer observed in 102_tc_522 j beghe concurring hewing to the bright line rules of revrul_69_ supra in the marital dissolution context will reduce the tax costs of divorce for the owners of small businesses held and operated in corporate form if the shareholder spouses can negotiate their separation continued - - has already reported the interest portion of the deferred pay- ments mrs read’s only adjustments in issue stem from her failure to include the principal payments in taxable gain for and mr read’s deficiencies arise from respondent’s inclusion in his ordinary_income as dividends of both principal and interest payments on the stock purchase for and mr read also suffers the indirect financial burden of continued agreement with the assurance that the redemption will be tax free to the remaining shareholder and a capital_gain transaction to the terminating shareholder the overall tax costs will ordinarily be less than if the terminating spouse qualifies for nonrecognition under sec_1041 but the remaining spouse suffers a dividend tax this will leave a bigger pie to be divided in setting the consideration for the shares to be redeemed fn ref omitted although for the years in issue in the cases at hand long- term capital_gain and ordinary_income were subject_to tax at the same rates the writer’s observation in arnes applies to more recent and current taxable years in which long-term_capital_gains are subject_to tax at lower rates than ordinary_income even in cases in which there are other remaining shareholders of the distributing_corporation treating the corporation’s payment to the departing shareholder ex-spouse as a distribution in redemption of the purchased stock to the remaining shareholder ex-spouse will cause the constructive distribution to be treated as a dividend to the remaining shareholder ex-spouse under sec_301 rather than as a substantially_disproportionate_redemption under sec_302 b gualifying as a distribution in payment in exchange for the stock under sec_302 with resulting capital_gain treatment this is because the proportionate interest in the corporation of the remaining shareholder ex-spouse will always be increased as a result of the reduction in the number of outstanding shares that occurs by reason of the redemption mr read has not put in issue respondent’s determination continued -- - the disallowance of the interest deductions claimed by mmp for the same years i note without further comment as does the majority opinion id that respondent has ‘indicated that ms read has the better argument that she should not recognize any gain from the sale of her stock pursuant to sec_1041 ’ second about the procedural settings on appeal an appeal in mrs read’s case would go to the court_of_appeals for the ninth circuit mr read’s appeal would go to the court_of_appeals for the eleventh circuit therefore a whipsaw of respondent is not out of the picture irrespective of how we decide the case sec_3 continued that he is liable to dividend treatment on the subsequent years’ payments of interest and principal on the note for years following the year the note was issued conceivably the correct approach would have been for respondent to treat the fair_market_value of the note as a dividend distribution to him in the year of issuance see 55_tc_441 supplemented 56_tc_763 revd and remanded 469_f2d_225 8th cir see also bittker kustice federal income_taxation of corporations and shareholders par cum supp a year for which the period of limitation on assessment of a deficiency has expired see also note and accompanying text of the joint dissenting opinion of judges laro and marvel there is no occasion to comment on how that issue should be decided if mr read had raised it in a timely fashion it is understood that mr read has not raised the point--- and it is not in issue in the cross-motions for partial summary_judgment before the court---that if the corporate payments are to be included in his gross_income as constructive dividends then he is entitled to deduct the interest portion of the payments as business_interest there is no occasion here to comment on this point other than to observe that under the analysis of the concurring opinion the obligation to pay interest to mrs read would be the deemed obligation of mr read rather than that of the corporation cf 109_tc_279 of mr read and mrs read it has been difficult to reach consensus about how to write up this case much less decide it because one or another of four different approaches might be used to determine the relationship of the on behalf of and primary and unconditional obligation standards a summary and comment follow on each of the possible approaches my continuing view is that the primary and uncondi- tional obligation standard of traditional redemption tax law and the on behalf of standard of q a-9 should be construed and applied consistently redemption tax law should govern the interpretation and application of the on behalf of standard the correct application of this view in the case at hand would result in no taxable_income to mr read because he never had the primary and unconditional obligation to purchase the stock he was entitled under both the settlement agreement and the divorce decree to lay his purchase obligation off on mmp which he did see 57_tc_781 37_tc_882 revrul_69_608 1969_2_cb_43 situation furthermore mmp became primarily and unconditionally obligated to purchase and pay for the stock notwithstanding that mrs read became entitled to mr read’s cf eg 100_tc_252 revd 29_f3d_433 8th cir affd 29_f3d_1533 11th cir - -- guaranty---his secondary obligation---and a pledge of the redeemed shares to secure the satisfaction of mmp’s obligation see 58_tc_381 19_tc_13 the reads’ settlement agreement and divorce decree which tied the amounts of mr read’s obligation to make periodic alimony payments to initial and continued compliance with the provisions for payment for mrs read’s stock did not saddle mr read with the primary and unconditional obligation to purchase and pay for mrs read’s stock the obligation to purchase and pay for her stock was assigned to and assumed by mmp as its primary and unconditional obligation judges laro and marvel believe that q a-9 just does not apply to redemptions adoption of this approach could cause both individual parties to a redemption of the stock of a divorcing spouse to incur tax_liability if they are not well advised in most cases the departing shareholder ex-spouse would recognize capital_gain on the transaction that terminates his or her stock even if the standard espoused by judges ruwe and halpern and the writer should be adopted a judge adopting that standard might conclude that mr read did not divest himself of the primary and unconditional obligation to purchase mrs read’s stock the ground of that conclusion with which the writer would disagree is that the integration of and reciprocal relationship between mr read’s alimony obligations and mmp’s continuing obligation to complete the scheduled payments in satisfaction of the obligation to purchase mrs read’s stock left mr read with the primary and unconditional continuing obligation to purchase her stock - -- interest whether the remaining shareholder ex-spouse has a dividend would depend on whether he or she is considered as having the primary and unconditional obligation to purchase the departing shareholder’s stock that was satisfied by the redemp- tion tf the remaining shareholder is considered to have had his primary and unconditional obligation to purchase the stock satisfied by the redemption then under general principles of tax law the redemption should be recast as a purchase of the stock by the remaining shareholder followed by his contribution of the stock to the corporation in exchange for the cash that he con- structively received and used to purchase the stock this recast transaction results in a distribution of cash essentially equiva- lent to a dividend to him under sec_301 and sec_302 and the departing shareholder ex-spouse should be entitled to nonrecognition of gain under sec_1041 in judge colvin’s view the on behalf of standard of q a-9 trumps traditional redemption tax law i don’t favor this view because it results in almost all cases under current law in a greater total_tax liability to the private parties its adoption would mean that less will be available to pay off the departing shareholder ex-spouse ’ however judge colvin’s view provides clear and consistent treatment of the ex-spouses and is see supra note - - preferable to the majority opinion adoption of judge colvin’s view by a majority of the court would provide clear guidance as to how we would resolve the treatment of both private parties in this type of consolidated case maybe the on behalf of and primary and unconditional obligation standards in a hard-fought consolidated case with no improvident concession by either private party can be so applied that both ex-spouses escape tax both traditional redemption tax law and sec_1041 reflect the same policy of facilitating transactions by removing tax impediments maybe respondent instead of being a putative stakeholder is left holding an empty bag i don’t think so some concluding thoughts the parties’ motions and memos in the case at hand leave the impression that mr read’s indication---he loses if mrs read wins--was based on what the majority opinion now tells the parties was their mistaken belief about the applicable there’s another way a far-out fifth possibility the court could hold that both parties escape tax which the court has properly rejected there is a view disagreed with in the writer’s 102_tc_522 arnes ii concurrence that the ninth circuit_court of appeals with whose views the court expressed disagreement in blatt and arnes ii has indicated in 981_f2d_456 9th cir arnes i and 167_f3d_1240 9th cir that it reads the on behalf of standard more expansively than the court has been willing to do the court could have decided in favor of mrs read under 54_tc_742 affd 445_f2d_985 10th cir and decided in favor of mr read by applying the primary and unconditional standard as judge halpern and the writer would do or the view of judges laro and marvel that the on behalf of standard of q a-9 does not apply to redemptions -- - legal standard if we are not going to adopt the view that the on behalf of and primary and unconditional obligation standards are to be applied consistently so that there need not be a winner and a loser as between the ex-spouses then mr read should not be bound by his indication my objective in making this suggestion against the background of what we said and did in 102_tc_77 101_tc_593 and arnes and our unsuccessful efforts to reach agreement in this case is to resolve it in a way that will result in a holding on the merits of the cases of both ex-spouses that will provide comprehensive guidance for future cases the parties and their counsel and the public and the tax bar who are looking to us for guidance in this recurring situation deserve no less unfortunately the majority opinion’s rejection of a rule_of equivalence perpetuates the uncertainty what every schoolboy knows compare state pipe nipple corp v commissioner tcmemo_1983_339 about how to avoid constructive_dividend treatment to the remaining shareholder under traditional redemption tax law will continue as a result of the variety of views expressed to fail to provide the guidance that the divorcing spouses and their advisers deserve and need i renew my pleas for guidance in the form of an interpretative_regulation or a congressional fix see arnes v commissioner 102_tc_542 n -- - laro and marvel jj dissenting the majority holds today that sec_1_1041-1t q a-9 q a-9 temporary income_tax regs fed reg date permits a spouse’ to avoid recogniz-- ing gain which she realized from a redemption of her stock in connec-- tion with her divorce because we do not believe that sec_1041 either textually or as interpreted in q a-9 applies to stock redemp- tions incident_to_divorce we respectfully dissent we summarize the critical facts of this case as follows in connection with his divorce from ms read mr read agreed to purchase ms read’s stock in mmp at a stated price or at his election to cause mmp to redeem ms read’s stock mr read elected under the terms of their divorce judgment to cause mmp to redeem the stock in his stead mmp authorized the redemption and entered into a binding stock purchase agreement with ms read pursuant to that agreement in mmp redeemed ms read’s stock paid ms read dollar_figure toward the redemption price and issued ms read a promis-- sory note representing the balance of the redemption price mmp paid ms read dollar_figure of the promissory note’s principal during each year in issue the majority concludes that ms read is not taxable on the subject gains resulting from her transfer of stock to mmp the majority reasons that q a applies to ms read’s date transfer of mmp stock and pursuant to sec_1041 no gain ' we use the term spouse to include both a spouse anda former spouse -- - shall be recognized by ms read as a result of that transfer majority op p the majority fails to discuss persuasively the fact that not only did ms read transfer her stock to mmp but that mmp paid her for that stock as well nor does the majority explain persuasively why the capital_gain that ms read realized on the sale of her stock to a third party mmp is excluded from her gross_income by virtue of either a statutory provision sec_1041 that applies only to transfers between spouses or a regulatory provi- sion q a-9 that extends sec_1041's reach to certain transfers to third parties on behalf of a spouse congress enacted sec_1041 in before that time an interspousal transfer of property for adequate_consideration was a taxable transaction for federal_income_tax purposes a transferring spouse was taxed on a transfer of appreciated_property to his or her spouse and the recipient spouse received a basis in the transferred property equal to its fair_market_value on the date of transfer see 370_us_65 congress enacted sec_1041 to change that result see h rept part pincite2 as enacted sec_1041 applies to defer the recognition of gain_or_loss on an interspousal transfer of property until the time that the recipient spouse transfers the property outside of the marital economic unit consisting of both spouses together see 102_tc_77 - - there is nothing in the text of sec_1041 that suggests sec_1041 applies to cases such as this where one spouse transfers prop- erty to a third party and receives payment in return the commissioner issued temporary regulations under sec_1041 pursuant to his general regulatory authority to prescribe all needful rules and regulations for the enforcement of this title sec_7805 these temporary regulations consist solely of sec_1_1041-1t temporary income_tax regs fed reg date which in turn consists of groups of a question and an answer in one of these groups namely q a-9 the commissioner set forth his position that sec_1041 reaches certain transfers of property to third parties on behalf of a spouse q a-9 provides q-9 may transfers of property to third parties on behalf of a spouse or former spouse qualify under sec_1041 a-9 yes there are three situations in which a transfer of property to a third party on behalf of a spouse or former spouse will qualify under sec_1041 pro- vided all other requirements of the section are satisfied the first situation is where the transfer to the third party is required by a divorce_or_separation_instrument the second situation is where the transfer to the third party is pursuant to the written request of the other spouse or former spouse the third situation is where the transferor receives from the other spouse or former spouse a written consent or ratification of the transfer to the third party such consent or ratification must state that the parties intend the transfer to be treated as a transfer to the nontransferring spouse or former spouse subject_to the rules of sec_1041 and must be received by the transferor prior to the date of filing of the trans- feror's first return of tax for the taxable_year in which the transfer was made in the three situations described above the transfer of property will be treated as made directly to the nontransferring spouse or former spouse and the nontransferring spouse will be treated as immedi- -- - 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 sec_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 gualifies for nonrecognition treatment under sec_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 sec_1_1041-1t q a-10 q a-10 temporary income_tax regs fed reg date we disagree although q a-10 does state that the transferor_of_property under sec_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 qé 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 ie 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 102_tc_77 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 --- - situations in which a spouse transfers property to a third party in satisfaction of an obligation that is owed or a gift that is made by the nontransferring spouse to the third party in the latter cases q a-9 operates to tax the nontransferring spouse on the transfer to the third party if and to the extent that the transfer is taxable as if the nontransferring spouse had first received a gift of the property from the transferring spouse qé a-9 says nothing about affording similar treatment to any proceeds which are received by a transferring spouse from a third party pursuant to the property transfer while it is true that q a-9 recognizes that some transfers of property by a spouse to a third party may qualify for nonrecognition treatment under sec_1041 q a-9 requires that the transfers must be on behalf of the transferor’s spouse the majority essentially takes the position that ms read’s transfer of stock to mmp was on mr read’s behalf because the majority concludes the redemption benefited him we disagree in this case ms read’s transfer of stock to mmp was on her own behalf since it allowed her to cash_out her interest in mmp at its appreciated value and it allowed her to do so under the majority’s view without any_tax implications to her the critical fact is that mr read had no obligation to mmp that was satisfied by ms read’s transfer of her stock to mmp thus although ms read may have transferred her stock to mmp at the direction of mr read we do not believe that she did so on behalf - -- of him in blatt we held that the redemption of ms blatt’s stock pursuant to a divorce decree was not on behalf of mr blatt because ms blatt failed to prove the redemption satisfied an obligation of his see blatt v commissioner t c pincite we set forth an example on the top of page wherein we stated that q a-9 operates when h owes a debt to a bank and w as part of a divorce settle- ment transfers her unencumbered appreciated stock to the bank in discharge of h’s debt we stated that the redemption in blatt was outside of q a-9 because the redemption in form was a transaction between petitioner ms blatt and corporation she transferred her stock to corporation in exchange for its appreciated value in cash a transfer that satisfies an obligation or a liability of someone is a transfer on behalf of that person id the only reported opinion in which this court has decided whether a corporate redemption incident to a divorce qualified for nonrecognition treatment under sec_1041 is blatt there as mentioned above we held that the redemption did not qualify under q a-9 we recognized that the court_of_appeals for the ninth circuit had afforded nonrecognition treatment to a spouse who had transferred her shares to a corporation pursuant to a divorce see 981_f2d_456 9th cir but we stated that we disagreed with the opinion of the court_of_appeals for the ninth circuit we stated in blatt that any putative benefit to mr blatt the nontransferring spouse such as relief from a possible claim under marital property distribution laws does not mean that - - the transfer by petitioner ms blatt of her shares to corporation was on behalf of mr blatt blatt v commissioner t c pincite but for the court_of_appeals for the ninth circuit we are unaware of any court_of_appeals that has addressed the issue of whether a corporate redemption qualifies under q a-9 we conclude with a final concern about the analysis set forth in the majority opinion congress enacted sec_1041 in part to remedy the whipsaw that occurred when one spouse failed to report his or her gain on the transfer of appreciated_property to the other spouse the government was whipsawed because the transferee’s basis in the transferred property equaled its fair_market_value and the transferor to the extent that the sec_6501 period of limitations had closed never paid any federal_income_tax on the appreciated value underlying that increased basis see id pincite although the majority avoids this whipsaw in the instant case by concluding that mr read conceded he was liable for federal_income_tax on the redemp- tion we do not agree that mr read’s position in this case was a concession of liability or should be treated as one mr read’s position was based on a legal analysis that the majority rejects mr read should not be held to that position after the legal princi- ples on which his position was based are turned aside by the major- ity particularly since the tax result to mr read may change as a result of their analysis but for his concession the majority would have had to analyze the tax effect of the redemption on mr read qé a-9 states that the - - nontransferring spouse is taxed on the third party transfer it does not specify when this tax arises if in fact sec_1041 applies to the redemption as the majority concludes then under general income_tax principles mr read is treated as receiving a dividend which arguably is taxable to him in the year of the redemption rather than in the years in issue as held by the majority see sec_301 b c and d and d see generally bittker bustice federal income_taxation of corporations and shareholders par dollar_figure cum supp thus under this argument mr read’s dividend is taxable to him in a year that most likely is closed by the sec_6501 period of limitations under the major- ity’s analysis therefore the government may be faced once again with the very same whipsaw that congress intended to remedy through the enactment of sec_1041 although the majority sidesteps this issue in this case by holding that mr read conceded his tax liabil- ity as to the subject payments that concession only applies to the subject years we see no judicial or equitable reason why mr read will be precluded from arguing in the future that the payments which he receives on the promissory note in other years with the exception we note that the installment_method of sec_453 does not apply to the receipt of a distribution taxed as a dividend under sec_301 the installment_method may be used only to report income from a disposition of property sec_453 and b and a distribution_of_property under sec_302 does not meet that requirement see 78_tc_1021 see generally bittker eustice federal income_taxation of corporations and shareholders distributions of corporation’s own obligations par dollar_figure pincite to cum supp -- - of are not taxable to him in those years because they were properly taxable to him in the year of the redemption thornton j agrees with this dissent