T.C. Memo. 1998-415
UNITED STATES TAX COURT
SHARON YAKIRA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27221-96. Filed November 18, 1998.
Steve Mather, for petitioner.
Daniel M. Whitley, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined a deficiency of
$145,517, an addition to tax under section 6651(a)(1) of $14,552,
and a penalty under section 6662(a) of $29,103 with respect to
petitioner's 1989 Federal income tax.1
1
All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
(continued...)
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After concessions,2 the issue for decision is whether
petitioner is entitled to nonrecognition of gain from the sale of
property located at 1276 Beverly Green Drive, Beverly Hills,
California (the California residence) under section 1034(a).3
FINDINGS OF FACT
The parties submitted this case fully stipulated pursuant to
Rule 122, and the stipulated facts are so found. The stipulation
of settled issues, the stipulation of facts, the first
supplemental stipulation of facts, and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Haifa, Israel, at the time she filed her petition.
On January 20, 1989, petitioner sold the California
residence. At the time of the sale, the California residence was
petitioner's principal residence within the meaning of section
1034(a). Petitioner realized a gain on the sale of the
California residence in the amount of $409,199.
1
(...continued)
the Tax Court Rules of Practice and Procedure.
2
Respondent concedes that petitioner is not liable for the
addition to tax pursuant to sec. 6651(a)(1) and the penalty
pursuant to sec. 6662(a).
3
In the petition, petitioner argued that respondent is
barred by the expiration of the statutory period of limitations
from assessing the deficiency for 1989. Petitioner did not
address this issue on brief; therefore, we find that petitioner
abandoned this issue. Petzoldt v. Commissioner, 92 T.C. 661, 683
(1989). Furthermore, it is clear from the facts of this case
that the period of limitations was open when respondent issued
the statutory notice of deficiency.
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Bay Development, Ltd. (Bay), is a corporation incorporated
under the laws of Israel. Petitioner is the sole shareholder and
director of Bay.
On April 18, 1990, Bay purchased a house at 115 Yefe Nof
Street, Haifa, Israel (the Haifa property). Bay paid a total of
$769,676 for the Haifa property. Petitioner provided Bay with
all of the funds Bay used to purchase the Haifa property. Upon
Bay's purchase of the Haifa property, it became petitioner's
principal residence.
On October 15, 1990, petitioner timely filed a Form 1040 for
1989 (the return). Petitioner attached a Form 2119, Sale of Your
Home, to the return. On line 2a of the Form 2119, in response to
the question of whether petitioner had bought or built a new
"main home", petitioner placed an "x" in the box under the column
labeled "No".
OPINION
Petitioner contends that she meets the requirements of
section 1034 and is entitled to defer recognition of the gain she
realized on her sale of the California residence. Respondent
argues that petitioner failed to purchase a new residence within
the replacement period required by section 1034(a), and therefore
she does not qualify for nonrecognition treatment.
Section 1034(a) provides for rollover of gain on the sale of
a principal residence:
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If property (in this section called "old residence")
used by the taxpayer as his principal residence is sold
by him and, within a period beginning 2 years before
the date of such sale and ending 2 years after such
date, property (in this section called "new residence")
is purchased and used by the taxpayer as his principal
residence, gain (if any) from such sale shall be
recognized only to the extent that the taxpayer's
adjusted sales price (as defined in subsection (b)) of
the old residence exceeds the taxpayer's cost of
purchasing the new residence.
Section 1034 is strictly construed. See Boesel v.
Commissioner, 65 T.C. 378, 386 (1975); see also Lokan v.
Commissioner, T.C. Memo. 1979-380; Bazzell v. Commissioner, T.C.
Memo. 1967-101. If a taxpayer is to receive nonrecognition
treatment under section 1034, it is essential that he or she
maintain continuity of title. See Starker v. United States, 602
F.2d 1341, 1351 (9th Cir. 1979); Marcello v. Commissioner, 380
F.2d 499, 502 (5th Cir. 1967), affg. on this issue and remanding
on other issues T.C. Memo. 1964-299; Boesel v. Commissioner,
supra; see also De Ocampo v. Commissioner, T.C. Memo. 1997-161;
Allied Marine Sys., Inc. v. Commissioner, T.C. Memo. 1997-101,
affd. without published opinion sub nom. Gibbons v. Commissioner,
155 F.3d 558 (4th Cir. 1998); Edmondson v. Commissioner, T.C.
Memo. 1996-393; May v. Commissioner, T.C. Memo. 1974-54. This
requirement operates to prevent taxpayers from enjoying the
benefits of tax deferral while placing themselves in a position
as nontitleholders to escape future recognition. See Boesel v.
Commissioner, supra at 388.
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"The clear statutory language requires that a new residence
be purchased and used by the taxpayer." Marcello v.
Commissioner, supra at 502. If a third party owns the new
residence, the purchase requirement of section 1034(a) is
ordinarily not met. Id. The reasons for having a third party
purchase the new residence or the fact that the taxpayer provided
the third party with the funds to purchase the new residence are
simply not relevant. See De Ocampo v. Commissioner, supra;
Allied Marine Sys., Inc. v. Commissioner, supra; Edmondson v.
Commissioner, supra; May v. Commissioner, supra.
Petitioner chose to form Bay and have Bay purchase the Haifa
property. Courts have repeatedly observed that "while a taxpayer
is free to organize his affairs as he chooses, nevertheless, once
having done so, he must accept the tax consequences of his
choice, whether contemplated or not". Commissioner v. National
Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149 (1974).
Furthermore, nearly 6 months after Bay purchased the Haifa
property petitioner, on the Form 2119, stated that she had not
bought or built a new main home.
Petitioner failed to obtain record title to the Haifa
property, or any other property that would qualify as a new
residence, during the replacement period. This alone prevents
petitioner from deferring the gain realized on the sale of the
California residence. See id.; Boesel v. Commissioner, supra.
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Thus, we sustain respondent's determination that the gain on the
California residence does not qualify for nonrecognition
treatment pursuant to section 1034.
To reflect the foregoing,
Decision will be entered
under Rule 155.