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Burlington house as their principal residence. On October 14,
1993, respondent issued the notice of deficiency. Through
amended pleadings, respondent alleged that petitioners' basis in
the Burlington property was $160,030, not $182,634 as stated on
the return, and asserted corresponding increases in the
deficiency, addition to tax, and accuracy-related penalty.
Petitioners allege that their basis in the Burlington house was
greater than the amount claimed on their return.
ULTIMATE FINDINGS OF FACT
1. The Burlington house was not the principal residence of
either petitioner in 1989.
2. The gain in the amount determined below must be
recognized in 1989.
3. Petitioners' 1989 tax return was not timely filed, and
they are liable for the delinquency addition.
4. Petitioners were negligent and disregarded rules or
regulations in claiming deferral of the gain on the sale of the
Burlington house.
OPINION
Generally, sections 1001 and 61 require a taxpayer to
recognize gain realized on the sale of property in the year of
the sale. Section 1034, however, requires a taxpayer to defer
recognition of gain realized on the sale of the taxpayer's
principal residence in certain circumstances. If the taxpayer
purchases and uses a new principal residence within the specified
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