Gary B. and Kathleen Mitchell - Page 14

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          record, however, only supports petitioners' argument that Fairway           
          was used as their principal residence prior to the critical date,           
          but the improvements were not begun within that same time frame.            
               Petitioners' attempt to concoct a scenario to be able to               
          defer gain based on the renovations caused their testimony, and             
          that of five people they called as witnesses, to be incongruous             
          and out of sync with the circumstantial evidence offered by                 
          respondent.   Based on the record before us, the only logical               
          explanation for the incongruity is one where petitioners                    
          established the Fairway residence as their principal residence              
          and then relied on the townhouse to get them through the heavy              
          renovation construction that was commenced after the June 21,               
          1990 deadline.                                                              
               Respondent cites several cases where the taxpayer only                 
          partially complied with the use requirement of section 1034.  For           
          example, in Bayley v. Commissioner, 35 T.C. 288 (1960), moving a            
          few pieces of furniture was insufficient to satisfy the used as             
          principal residence requirement.  In Henry v. Commissioner, T.C.            
          Memo. 1982-469, even circumstances beyond the taxpayer's control            
          that kept them from moving into the new residence did not                   
          mitigate or obviate the use requirement.  Here, petitioners used            
          Fairway as their principal residence and took the necessary legal           
          and physical steps to make Fairway their permanent residence.               
          The precarious aspect of petitioners’ situation is their                    
          ownership of two residences, presenting the question as to which            




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