Ownership by Joann Arnes, a former spouse, is clearly not attributed to John.
The fact that the Arnes decision poses more questions than it answers is not an uncommon phenomenon.
1041, as interpreted by both Arnes and Balding, is clearly a powerful section that can trap the unwary.
Needless to say, the application of Arnes would be much easier had the court taken the time to express its feeling with respect to the facts recited.
The most controversial aspect of the majority decision was a statement that the court disagreed with the Ninth Circuit in Arnes I--without giving a reason.
Arnes II also was a reviewed decision, resulting in three concurring opinions and two dissenting opinions.
Since the case was appealable to the Ninth Circuit, another issue was whether the court was required to follow Arnes I.
In Arnes II, the Tax Court used the "primary and unconditional" standard in concluding that John was not subject to tax on a constructive dividend as a result of the redemption.