Jose M. Vidaurre and Ana Maria Vidaurre - Page 5

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          Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933);                  
          Feldman v. Commissioner, 20 F.3d 1128, 1132 (11th Cir. 1994).               
          Issue 1.  Whether Petitioners Failed To Report Gain From the Sale           
          of Property                                                                 
               Under section 1001(c), a taxpayer must generally recognize             
          all gain or loss realized upon the sale or exchange of property.            
               An exception to section 1001(c) is section 1034(a),4 which             
          allows a taxpayer to defer a gain when proceeds of a property               
          sale are rolled over into a new principal residence.  However,              
          section 1034(a) further provides that the property sold must be             
          the taxpayer's principal residence.  Petitioners' Fort Lauderdale           
          property contained only a foundation and never served as                    
          petitioners' principal residence.                                           
               Section 121 permits taxpayers over the age of 55 to exclude            
          from gross income gain from the sale of property (not to exceed             
          $125,000) which has been their principal residence for 3 of the 5           
          years prior to sale.  Sec. 121(a) and (b).  While petitioners are           

          4  Sec. 1034(a) provides, in pertinent part, as follows:                    
                    (a) Nonrecognition of Gain.--If property (in this                 
               section called "old residence") used by the taxpayer as his            
               principal residence is sold by him and, within a period                
               beginning 2 years before the date of such sale and ending 2            
               years after such date, property (in this section called "new           
               residence") is purchased and used by the taxpayer as his               
               principal residence, gain (if any) from such sale shall be             
               recognized only to the extent that the taxpayer's adjusted             
               sales price (as defined in subsection (b)) of the old                  
               residence exceeds the taxpayer's cost of purchasing the new            

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