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Income Tax Keyed to Lind
Young v. Commissioner
Citation:
240 F.3d 369 (4th Cir. 2001)Facts
Louise and John Young married in 1969 and divorced in 1988. Through divorce proceedings, the two entered into a settle agreement in 1989. Pursuant to this agreement, Mr. Young delivered to Mrs. Young a promissory note for $1.5 million, payable in five annual installments plus interest. This note was secured by a deed of trust on 71 acres of property that Mr. Young received as part of the same 1989 agreement. Mr. Young began to default on his payments under this agreement which ultimately led to the 1992 agreement, where Mrs. Young agreed to release her ex-husband of all claims in exchange for the property Mr. Young had received under the 1989 agreement. Notably, Mrs. Young agreed to form this separate settlement agreement in 1992 in lieu of enforcing her existing collateral interest in that same property under the previous agreement. The 1992 agreement also provided an option for Mr. Young to repurchase the land at an agreed upon price of $2.2m, with the right expiring in December 1992. Mr. Young assigned this option to a third party who subsequently exercised the option and purchased the land from Mrs. Young.
On her 1992 and 1993 tax returns, Mrs. Young reported no capital gain from the sale of the property to the third party, nor did she report the $300,606 portion of the $2.2 million that went directly to pay her attorneys’ fees. Mr. Young also did not report any taxable gain. The Commissioner asserted deficiencies against both Mr. Young and Mrs. Young, as well as Mrs. Young’s husband in 1992, James Ausman.
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