Transfer of property incident to a divorce that is covered by IRC §1041 is a nonrecognition transaction, with each spouse getting a carryover basis, even if the transaction otherwise appears to be a sale. The taxpayer in the case of Belot v. Commissioner, TC Memo 2016-113 argued that this nonrecognition provision should apply in his case.

IRC §1041(a) provides:

(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)—

(1) a spouse, or

(2) a former spouse, but only if the transfer is incident to the divorce.