The Story of Davis: Transfers of Property Incident to Divorce

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This paper presents the story of United States v. Davis, 370 U.S. 162 (1962), which provided needed clarification of the tax consequences of transfers of property incident to a divorce. But the Court's solution - penalizing the transferor spouse by taxing any appreciation in the transferred property and rewarding the transferee spouse with a fair market value basis in the property - was short lived. Congress soon responded by enacting section 1041 to equalize the tax treatment of divorcing couples throughout the fifty states and to empower the Service to effectively police compliance. Drawing upon the parties' briefs and oral arguments before the U.S. Supreme Court, judicial opinions in other cases, and scholarly commentary, it describes what was really involved in the case, the government's and taxpayer's litigation strategies, and the case's impact on the development of the tax law. Indeed, the impact of Davis continues to be felt in the tax law in the many contexts not covered by section 1041.

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