-7-
residence. The Court of Appeals stated:
Congress intended to enable homeowners to use the sales
proceeds from a sale of the old residence for buying
their own home. The purpose of Section 1034 was not to
permit a taxpayer to re-invest the proceeds from the sale
of his home in the home of another person without
recognizing for federal income tax purposes the gain
realized by the sale. The clear statutory language
requires that a new residence be purchased and used by
the taxpayer. That the residence must be owned by the
taxpayer is made evident by the exception in subsection
(g) of Section 1034 permitting either the husband or the
wife to hold the residence in his or her name. If a
third party owns the residence, the purchase requirements
are not met.
Id. at 502 (fn. refs. omitted).
In May v. Commissioner, T.C. Memo. 1974-54, the taxpayer
received proceeds from the disposition of her principal residence
pursuant to a divorce settlement. She gave a portion of the
proceeds to her daughter, who used the money as a downpayment on
three houses, and the taxpayer spent some of the proceeds on
improvements to her daughter's houses. The taxpayer advanced the
money to her daughter so that the taxpayer's ex-husband would not
know the taxpayer's whereabouts or what property was acquired with
the funds. She also did not want the property to become part of
her estate. The taxpayer claimed that the gain from the sale of
her interest in her former residence should be deferred under
section 1034 to the extent the proceeds were used to acquire
additional residential property and make improvements. We
disagreed and held that the taxpayer was not entitled to deferral
of gain because the property was purchased by her daughter, who
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