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the "Cost of purchasing the new residence" as the "total of all
amounts which are attributable to the acquisition, construction,
reconstruction, and improvements constituting capital
expenditures". Unless the reconstruction or improvement to the
new residence is commenced within the replacement period, none of
the cost may be considered part of the "Cost of purchasing the
new residence". See, e.g., sec. 1.1034-1(b)(7), (c)(4)(iii),
Income Tax Regs.
The record is replete with evidence that the improvements
claimed to have been made by petitioners were not begun prior to
June 21, 1990. The dates that checks were negotiated and/or
cashed, the dates of building permits and inspections, and the
testimony of the county building inspector all firmly establish
that the garage, kitchen, and bathroom additions/renovations were
not commenced until after June 21, 1990, and, therefore, that
petitioners’ expenditures for those projects do not enter into
the cost of the new residence eligible for rollover treatment.
We hold that $112,470 of the improvements to the Fairway
residence were commenced after June 21, 1990, and do not qualify
for section 1034 treatment. See Kern v. Granquist, 291 F.2d 29
(9th Cir. 1961).
Finally, we consider whether petitioners are liable for
additions to tax attributable to their negligence for 1987 and
1988. Respondent determined additions to tax for negligence
under section 6653(a)(1)(A) and (B) for 1987 and section
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