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When petitioner originally constructed his residence on the
Clayton property, he was considering building it in the upper
wooded area. However, because that area needed extensive
clearing, petitioner would not have been able to prepare the site
and build a house within the 2-year period required by law.
Instead, petitioner built his residence above the plain on a
cleared plateau, which abutted the upper, steeply hilled section
of the Clayton property.
OPINION
Respondent determined a deficiency against petitioner for 1988 of
$98,917, and additions to tax under sections 6651(a) and 6654(a)
of $24,729 and $6,326, respectively. These deficiencies were
based on respondent's determination that petitioner had capital
gains from the sale of his principal residence in Livermore,
California, because petitioner failed to establish how much of
the 51 acres of the new property, which he purchased in Clayton,
California, was used by him as his principal residence.5
Petitioner asserts that he used only 7-� of the 51 acres of the
Clayton property for his horse boarding and breeding business,
that the remaining land was used as his principal residence, and
therefore that his investment therein qualifies for
nonrecognition treatment under section 1034(a).
5 In the notice of deficiency, respondent failed to allocate
any portion of the 51 acres of the Clayton property to
petitioner's residence. However, at trial, respondent concedes
that 1 acre out of the 51 acres was used by petitioner as his
principal residence.
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