Constructive Transfers and Transfers of
Property to a Third Party on Behalf of a Spouse

DEPARTMENT OF THE TREASURY 
Internal Revenue Service 26 CFR Part 1 [REG-107151-00] RIN 1545-AX99

TITLE: Constructive transfers and transfers of property to a third
party on behalf of a spouse

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations under section
1041 of the Internal Revenue Code relating to the tax treatment of
certain redemptions, during marriage or incident to divorce, of
stock owned by a spouse or former spouse. This document also
provides notice of a public hearing on the proposed regulations.

DATES: Written comments must be received by November 1, 2001.
Requests to speak and outlines of topics to be discussed at the
public hearing scheduled for Friday, December 14, 2001, must be
received by November 23, 2001.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-107151-00), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to CC:ITA:U (REG-107151-00), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the "Tax Regs" option
on the IRS Home Page, or by submitting comments directly to the IRS
Internet site at. http://www.irs.gov/tax_regs/regslist.html. The
public hearing will be held in the Auditorium, Internal Revenue
Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed
regulations, Edward C. Schwartz, (202) 622-4960; concerning
submissions and the hearing, Guy Traynor, (202) 622-7180 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget , Attn: Desk
Officer for the DEPARTMENT OF THE TREASURY, Office of Information
and Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service , Attn: IRS Reports Clearance Officer,
W:CAR:MP:FP:S, Washington, DC 20224. Comments on the collection of
information should be received by October 2, 2001. Comments are
specifically requested concerning:

Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed
collection of information (see below);.

How the quality, utility, and clarity of the information to be
collected may be enhanced;

How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information. The collection of information in this proposed
regulation is in §1.1041-2(c) of these regulations. Section
1.1041-2(c) permits spouses or former spouses to treat a redemption
of stock of one spouse (the first spouse) as a transfer of that
stock to the other spouse (the second spouse) in exchange for the
redemption proceeds and a redemption of the stock from the second
spouse in exchange for the redemption proceeds if they reflect their
intent to do so in a written agreement or if a divorce or separation
agreement requires such treatment. This information must be retained
and is required for the spouses or former spouses to report properly
the tax consequences of the redemption. The likely respondents are
individuals.

Estimated total annual reporting and/or recordkeeping burden: 500
hours.

Estimated average annual burden hours per respondent and/or
recordkeeper: 30 minutes.

Estimated number of respondents and/or recordkeepers: 1,000

Estimated annual frequency of responses: On occasion.

An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
valid control number assigned by the Office of Management and
Budget. Books or records relating to a collection of information
must be retained as long as their contents may become material in
the administration of any internal revenue law. Generally, tax
returns and tax return information are confidential, as required by
26 U.S.C. 6103.

Background

Section 1041 was added to the Internal Revenue Code by section 421
of the Tax Reform Act of 1984 (1984 Act), Public Law 98-369. Section
1041(a) provides that no gain or loss will be recognized on a
transfer of property from an individual to (or in trust for the
benefit of) a spouse or former spouse if the transfer is incident to
a divorce. Under section 1041(b), for purposes of subtitle A, the
transferee is treated as having acquired the property by gift from
the transferor with a carryover basis from the transferor.

The House Report accompanying the 1984 Act states:

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.

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 [United
States v. Davis, 370 U.S. 65 (1962)] 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.

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 between former spouses should be changed. . . .

The bill provides that the transfer of property to a spouse incident
to a divorce will be treated, for income tax purposes, in the same
manner as a gift. Gain (including recapture income) or loss will not
be recognized to the transferor, and the transferee will receive the
property at the transferor's basis . . . .

Thus, uniform Federal income tax consequences will apply to these
transfers notwithstanding that the property may be subject to
differing state property laws.

H. R. Rep. No. 432, 98th Cong., 2nd Sess., Part 2, at 1491-92 (1984)
(House Report). By enacting the carryover basis rules in section
1041(b), Congress has, in essence, provided spouses with a mechanism
for determining between themselves which one will pay tax upon the
disposition of property outside the marital unit. For example,
assume Spouse A owns appreciated property that he or she wishes to
sell to a third party. The spouses may agree that Spouse A will sell
the property to the third party and recognize the gain. Any
subsequent transfer from Spouse A to Spouse B of.the sales proceeds
will be nontaxable under section 1041. In the alternative, the
spouses may agree that Spouse A will first transfer the property to
Spouse B. This transfer is nontaxable under section 1041, with
Spouse B taking a carryover basis in the transferred property.
Spouse B will then recognize the gain or loss on the sale of the
property to the third party because a sale to a third party is not
covered by section 1041. In this latter scenario, the tax
consequences of the sale are shifted to Spouse B. Under
§1.1041-1T(c), Q&A-9, of the Temporary Income Tax Regulations
(Q&A-9), section 1041 will apply to a transfer of property by the
transferor spouse to a third party that is on behalf of the other
spouse or former spouse (nontransferor spouse) if:

(i) the transfer to the third party is required by the divorce or
separation instrument;

(ii)the transfer to the third party is pursuant to the written
request of the nontransferor spouse; or

(iii) the transferor spouse receives from the nontransferor spouse a
written consent or ratification of the transfer to the third party.
If Q&A-9 applies, a direct transfer of property to a third party is
treated first as a transfer to the nontransferor spouse in a
transaction governed by section 1041 and then as an immediate
transfer by the nontransferor spouse to the third party in a
transaction not governed by section 1041.

Q&A-9 has provided spouses and former spouses with the ability to
shift between themselves the tax consequences of a sale of property
outside the marital unit. However, the questions of what standard
should be applied for purposes of determining whether a transfer of
property is, or is not, "on behalf of" the nontransferor spouse for
purposes of section 1041, and whether the same standard should
be.applied for purposes of determining the tax treatment of the
transferor spouse and the nontransferor spouse under provisions of
the Internal Revenue Code other than section 1041, have become the
source of much confusion and litigation in the context of certain
stock redemptions. For instance, the United States Court of Appeals
for the Ninth Circuit in Arnes v. United States, 981 F.2d 456 (9th
Cir. 1992) (regarding the tax treatment of the transferor spouse),
and the Tax Court in Arnes v. Commissioner, 102 T.C. 522 (1994)
(regarding the tax treatment of the nontransferor spouse), applied
different standards to determine the tax treatment of the transferor
spouse and the nontransferor spouse, respectively, in the context of
a redemption of stock owned by the transferor spouse. Consequently,
neither spouse was taxed on the redemption proceeds, a result that
Congress clearly sought to avoid in enacting section 1041. See House
Report at 1491.

In the Arnes cases, a husband and wife owned all the stock of a
corporation. The divorce instrument required the wife to tender her
stock to the corporation for redemption. The Ninth Circuit held that
the redemption was on behalf of the husband and, therefore, was not
taxable to the wife, because it found that the husband had an
obligation under the property settlement to purchase the wife's
stock and the husband was benefitted by the redemption. The Ninth
Circuit did not address the tax treatment of the husband, although
it implied that the husband might be taxable on the redemption.

The Tax Court in Arnes addressed whether the husband was taxable on
the redemption. The Tax Court stated that the question was whether
the husband had a.constructive dividend; that is, whether he had a
"primary and unconditional obligation" to purchase the stock. The
court concluded that the husband did not have a primary and
unconditional obligation to purchase the wife's stock and,
therefore, the redemption of the wife's stock did not result in a
constructive dividend to the husband. This conclusion, the court
stated, was supported by the IRS's position in Rev. Rul. 69- 608,
1969-2 C.B. 42. Rev. Rul. 69-608 holds that a corporation's
redemption of its stock from a shareholder (the first shareholder)
results in a constructive distribution to another shareholder (the
second shareholder) if the redemption is in satisfaction of the
second shareholder's primary and unconditional obligation to
purchase the first shareholder's stock. The majority opinion of the
Tax Court in Arnes expressly declined to opine as to whether the "on
behalf of" standard of Q&A-9 is the same as the "primary and
unconditional obligation" standard applicable to constructive
distributions. The uncertainty has persisted in subsequent cases. In
Read v. Commissioner, 114 T.C. 14 (2000), the Tax Court rejected
equating the "primary and unconditional obligation" standard with
the "on behalf of" standard in Q&A-9 for purposes of determining the
tax consequences of a stock redemption to the transferor spouse. The
Tax Court concluded that the appropriate standard for determining
whether a transfer of property to a third party by a transferor
spouse was on behalf of the nontransferor spouse under Q&A-9 was
whether the transferor spouse was acting "as the representative of"
or "in the interest of" the nontransferor spouse or whether the
transfer satisfied a liability or an obligation of the nontransferor
spouse. See also Blatt v. Commissioner, 102 T.C. 77 (1994).

Because of these inconsistent standards, the regulations must be
amended to provide greater certainty in determining which spouse
will be taxed on certain stock redemptions occurring during marriage
or incident to divorce. Explanation of Provisions The proposed
regulations apply where, under current law, the "primary and
unconditional obligation" standard applicable to constructive
distributions governs the tax consequences to one spouse or former
spouse of a redemption of stock owned by the other spouse or former
spouse. Accordingly, the proposed regulations provide that they
apply only where the nontransferor spouse owns stock of the
redeeming corporation either immediately before or immediately after
the stock redemption.

The proposed regulations provide that, if a corporation redeems
stock owned by a transferor spouse, and the transferor spouse's
receipt of property in respect of such stock is treated, under
applicable tax law, as resulting in a constructive distribution to
the nontransferor spouse, then the stock redeemed is deemed first to
be transferred by the transferor spouse to the nontransferor spouse
and then to be transferred by the nontransferor spouse to the
redeeming corporation. Section 1041 applies to the deemed transfer
of the stock by the transferor spouse to the nontransferor spouse,
provided the requirements of section 1041 are otherwise satisfied
with respect to such deemed transfer. Section 1041 does not apply to
the deemed transfer of stock from the nontransferor spouse to the
redeeming corporation. Any property actually received by the
transferor spouse from the redeeming corporation in respect of the
redeemed stock is deemed first to be transferred by the redeeming
corporation to the nontransferor. spouse in exchange for the stock
in a transaction to which section 1041 does not apply, and then to
be transferred by the nontransferor spouse to the transferor spouse
in a transaction to which section 1041 applies, provided the
requirements of section 1041 are otherwise satisfied with respect to
such deemed transfer. The tax consequences of the deemed transfer of
stock from the nontransferor spouse to the redeeming corporation in
exchange for the redemption proceeds from the redeeming corporation
are determined under applicable provisions of the Internal Revenue
Code (other than section 1041) as if such transfers had actually
occurred.

Where applicable law does not treat a transferor spouse's receipt of
property in respect of stock redeemed as resulting in a constructive
distribution to the nontransferor spouse, the form of the stock
redemption is respected. In other words, the transferor spouse and
the redeeming corporation are respected as parties to the redemption
transaction, and thus the transferor spouse, not the nontransferor
spouse, is treated as a party to the redemption.

The approach of the proposed regulations recognizes that applicable
tax law currently imposes the primary and unconditional obligation
standard, which has its origins in well- established case law
including Wall v. United States, 164 F.2d 462 (4th Cir. 1947), and
Sullivan v. United States, 363 F.2d 724 (8th Cir. 1966), for
determining whether a shareholder has received a constructive
distribution. The proposed regulations are designed to remove
inconsistencies caused by the simultaneous potential application of
the on behalf of standard of Q&A-9 for one spouse and the primary
and unconditional obligation standard of the case law for the other
spouse. Thus, for example, if the rules of the proposed regulations
had applied in the Arnes case, because the husband did not have a
primary and unconditional obligation to purchase the wife's stock,
the redemption would have been taxed in accordance with its form
with the result that the wife would have incurred the tax
consequences of the redemption.

The proposed regulations provide a special rule that permits spouses
and former spouses to treat a redemption of the transferor spouse's
stock as a deemed transfer of the redeemed stock by the transferor
spouse to the nontransferor spouse and then a deemed transfer of the
redeemed stock by the nontransferor spouse to the redeeming
corporation, and to treat any property actually received by the
transferor spouse from the redeeming corporation in respect of the
redeemed stock as first transferred by the redeeming corporation to
the nontransferor spouse in exchange for the stock and then to be
transferred by the nontransferor spouse to the transferor spouse.
The special rule will apply if a divorce or separation instrument,
or a written agreement between the transferor spouse and the
nontransferor spouse, requires the transferor spouse and the
nontransferor spouse to file their Federal income tax returns in a
manner that reflects that the transferor spouse transferred the
redeemed stock to the nontransferor spouse in exchange for the
redemption proceeds and the corporation redeemed the stock from the
nontransferor spouse in exchange for the redemption proceeds. Such
divorce or separation instrument must be effective, or the written
agreement must be executed by both spouses or former spouses, prior
to the date on which the nontransferor spouse files such spouse's
first timely filed Federal income tax return for the year that
includes. the date of the redemption, but no later than the date
such return is due (including extensions). The special rule is
provided to give spouses and former spouses a means of ensuring the
application of those Federal income tax consequences that would have
resulted had applicable tax law treated the transferor spouse's
stock redemption as resulting in a constructive distribution to the
nontransferor spouse.

Proposed Effective Date

The proposed regulations are applicable to redemptions of stock on
or after the date the regulations in this section are published as
final regulations, except for redemptions of stock that are pursuant
to instruments in effect before the date the regulations in this
section are published as final regulations.For redemptions of stock
before the date the regulations in this section are published as
final regulations and redemptions of stock that are pursuant to
instruments in effect before the date the regulations in this
section are published as final regulations, see §1.1041-1T(c),
A-9. However, these regulations will be applicable to redemptions
described in the preceding sentence if the spouses or former spouses
execute a written agreement on or after August 3, 2001, that
satisfies the requirements of paragraph (c) of these regulations
with respect to such redemption.

Special Analysis

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has
also been determined that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not apply to these.
regulations, and because the regulations do not impose a collection
of information on small entities, a Regulatory Flexibility Analysis
is not required. Pursuant to section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed
original and eight (8) copies) and electronic comments that are
submitted timely to the IRS. The IRS is also interested in receiving
comments regarding the proper treatment of transfers of property to
third parties by a spouse or former spouse other than transfers
under these proposed regulations that solely govern certain
redemptions of stock owned by a spouse or former spouse. Further,
comments are specifically requested concerning the effective date
provisions in the proposed regulations. All comments will be
available for public inspection and copying.

A public hearing has been scheduled for December 14, 2001, at 10:00
a.m. in the Auditorium, Internal Revenue Building, 1111 Constitution
Avenue, NW., Washington, DC. Due to building security procedures,
visitors must enter at the 10 th Street entrance, located between
Constitution and Pennsylvania Avenues, NW. In addition, all visitors
must present photo identification to enter the building. Because of
access restrictions, visitors will not be admitted beyond the
immediate entrance area more than 15 minutes before the hearing
starts. For information about having your. name placed on the
building access list to attend the hearing, see the "FOR FURTHER
INFORMATION CONTACT" section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must
submit timely written or electronic comments and must submit an
outline of the topics to be discussed and the time to be devoted to
each topic (preferably a signed original and eight (8) copies) by
November 23, 2001.

A period of 10 minutes will be allotted to each person for making
comments. An agenda showing the scheduling of the speakers will be
prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the
hearing.

Drafting Information

The principal author of these regulations is Edward C. Schwartz of
the Office of the Associate Chief Counsel (Income Tax and
Accounting). However, other personnel from the IRS and Treasury
Department participated in their development. List of Subjects in 26
CFR Part 1 Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in
part as follows:

Authority: 26 U.S.C. 7805 * * *

Par.2. In §1.1041-1T, paragraph (c) is amended by adding a
sentence at the end of A-9 to read as follows:

§1.1041-1T Treatment of transfers of property between spouses
or incident to divorce (temporary).

* * * * *

(c) * * *

A-9: * * * This A-9 shall not apply to transfers to which
§1.1041-2 applies.

* * * * *

Par. 3. Section 1.1041-2 is added to read as follows:

§1.1041-2 Certain redemptions of stock.

(a) In general --

(1) Redemptions of stock resulting in constructive distributions.
Notwithstanding Q&A-9 of §1.1041-1T(c), if a corporation
redeems stock owned by a spouse or former spouse (transferor
spouse), and the transferor spouse's receipt of property in respect
of such redeemed stock is treated, under applicable tax law, as
resulting in a constructive distribution to the other spouse or
former spouse (nontransferor spouse), then the stock redeemed shall
be deemed first to be transferred by the transferor spouse to the
nontransferor spouse and then to be transferred by the nontransferor
spouse to the redeeming corporation. Any property actually received
by the transferor spouse from the redeeming corporation in respect
of the redeemed stock shall be deemed first to be transferred by the
redeeming. corporation to the nontransferor spouse in exchange for
the redeemed stock and then to be transferred by the nontransferor
spouse to the transferor spouse.

(2) Redemptions of stock not resulting in constructive
distributions. Notwithstanding Q&A-9 of §1.1041-1T(c), if a
corporation redeems stock owned by the transferor spouse, and the
transferor spouse's receipt of property in respect of such redeemed
stock is not treated, under applicable tax law, as resulting in a
constructive distribution to the nontransferor spouse, then the form
of the stock redemption shall be respected for Federal income tax
purposes. Therefore, the transferor spouse and the redeeming
corporation will be respected as engaging in a redemption
transaction to which the nontransferor spouse is not a party.

(b) Tax consequences --

(1) Transfers described in paragraph (a)(1). The tax consequences of
each deemed transfer described in paragraph (a)(1) of this section
are determined under applicable provisions of the Internal Revenue
Code as if the parties had actually made such transfers.
Accordingly, section 1041 applies to any deemed transfer of the
stock and redemption proceeds between the transferor spouse and the
nontransferor spouse, provided the requirements of section 1041 are
otherwise satisfied with respect to such deemed transfer. Section
1041, however, will not apply to any deemed transfer of stock by the
nontransferor spouse to the redeeming corporation in exchange for
the redemption proceeds. See section 302 for rules relating to the
tax consequences of certain corporate redemptions.

(2) Transfers described in paragraph (a)(2). Section 1041 will not
apply to any of the transfers described in paragraph (a)(2) of this
section. See section 302 for rules relating to the tax consequences
of certain stock redemptions.

(c) Special rule. Notwithstanding applicable tax law, a transferor
spouse's receipt of property in respect of redeemed stock will be
treated as resulting in a constructive distribution to the
nontransferor spouse for purposes of paragraph (a)(1) of this
section if a divorce or separation instrument, or a written
agreement between the transferor spouse and the nontransferor
spouse, requires the transferor spouse and the nontransferor spouse
to file their Federal income tax returns in a manner that reflects
that the transferor spouse transferred the redeemed stock to the
nontransferor spouse in exchange for the redemption proceeds and the
corporation redeemed the stock from the nontransferor spouse in
exchange for the redemption proceeds. Such divorce or separation
instrument must be effective, or written agreement must be executed
by both spouses or former spouses, prior to the date on which the
nontransferor spouse files such spouse's first timely filed Federal
income tax return for the year that includes the date of the stock
redemption, but no later than the date such return is due (including
extensions).

(d) Limited scope. Paragraphs (a) and (c) of this section shall
apply only to stock redemptions where, either immediately before or
immediately after the stock redemption, the nontransferor spouse
owns directly stock of the redeeming corporation.

(e) Examples. The provisions of this section may be illustrated by
the following examples:.

Example 1. Corporation X has 100 shares outstanding. A and B each
own 50 shares. A and B divorce. The divorce instrument requires B to
purchase A's shares, and A to sell A's shares to B, in exchange for
$100x. Corporation X redeems A's shares for $100x. Assume that,
under applicable tax law, the stock redemption results in a
constructive distribution to B. Paragraph (a)(1) of this section
applies to the transfers of stock and redemption proceeds in
connection with the redemption transaction. Accordingly, A will be
treated as transferring A's stock of Corporation X to B in a
transfer to which section 1041 applies (assuming the requirements of
section 1041 are otherwise satisfied). B will be treated as
transferring the Corporation X stock B is deemed to have received
from A to Corporation X in exchange for $100x in an exchange to
which section 1041 does not apply and sections 302(d) and 301 apply,
and B will be treated as transferring the $100x to A in a transfer
to which section 1041 applies.

Example 2. Assume the same facts as Example 1, except that the
divorce instrument requires A to sell A's shares to Corporation X in
exchange for a note. B guarantees Corporation X's payment of the
note. Assume that, under applicable tax law, B does not have a
primary and unconditional obligation to purchase A's stock. Also
assume that the special rule of paragraph (c) of this section does
not apply to the transfer of stock and redemption proceeds in
connection with the redemption transaction. Under applicable tax
law, the stock redemption does not result in a constructive
distribution to B, because B does not have a primary and
unconditional obligation to purchase A's stock. Paragraph (a)(1) of
this section does not apply to the transfers of stock and redemption
proceeds in connection with the redemption transaction. Accordingly,
under paragraphs (a)(2) and (b)(2) of this section, the tax
consequences of the redemption will be determined in accordance with
its form as a redemption of A's shares by Corporation X. See section
302.

Example 3. Assume the same facts as Example 2, except that the
divorce instrument provides as follows: "A and B agree that A's
Federal income tax return for the year that includes the date of the
redemption will reflect that A transferred A's shares of Corporation
X to B in exchange for the redemption proceeds of $100x and B's
Federal income tax return for such year will reflect that
Corporation X redeemed such shares from B in exchange for such
proceeds." By virtue of the special rule of paragraph (c) of this
section, the redemption is treated as resulting in a constructive
distribution to B. Accordingly, A will be treated as transferring
A's stock of Corporation X to B in a transfer to which section 1041
applies (assuming the requirements of section 1041 are otherwise
satisfied). B will be treated as transferring the Corporation X
stock B is deemed to have received from A to Corporation X in
exchange for $100x in an exchange to which section 1041 does not
apply and sections 302(d) and 301 apply, and B will be treated as
transferring the $100x to A in a transfer to which section 1041
applies.(f) Effective date. Except as otherwise provided in this
paragraph, this section is applicable to redemptions of stock on or
after the date these regulations are published as final regulations
in the Federal Register, except for redemptions of stock that are
pursuant to instruments in effect before the date these regulations
are published as final regulations in the Federal Register. For
redemptions of stock before the date these regulations are published
as final regulations in the Federal Register and redemptions of
stock that are pursuant to instruments in effect before the date
these regulations are published as final regulations in the Federal
Register, see §1.1041-1T(c), A-9. However, these regulations
will be applicable to redemptions described in the preceding
sentence of this paragraph (f) if the spouses or former spouses
execute a written agreement on or after August 3, 2001 that
satisfies the requirements of paragraph (c) of this section with
respect to such redemption.

Deputy Commissioner of Internal Revenue

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