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Petitioners bear the burden of showing their entitlement to
the nonrecognition of income benefits of section 1034 by proving
that they have satisfied all of the section's requirements. Rule
142(a); Welch v. Helvering, 290 U.S. 111 (1933). Income tax
provisions which exempt taxpayers under given circumstances from
paying taxes or permit them to postpone taxes are narrowly
construed. Commissioner v. Schleier, 515 U.S. 323, 328 (1995);
Commissioner v. Baertschi, 412 F.2d 494, 499 (6th Cir. 1969), revg.
and remanding 49 T.C. 289 (1967). In fact, this Court has
indicated that section 1034 must be strictly construed. See, e.g.,
Boesel v. Commissioner, 65 T.C. 378, 390 (1975); Lokan v.
Commissioner, T.C. Memo. 1979-380.
Although petitioners purchased the Ely residence within 2
years of selling the Mequon residence, the adjusted sale price of
the Mequon residence ($248,809) exceeded the cost of the Ely
residence by $182,221, which in turn exceeded the $40,140 gain
realized on the sale. Thus, because petitioners did not meet the
requirements of section 1034, they must include the $40,140 gain
realized in their 1993 income.
b. Constitutional Arguments
Petitioners contest the constitutionality of any statutory
provisions or Internal Revenue Service (IRS) actions (or inactions)
which result in capital gain from the sale of their Mequon
residence, arguing as follows: (1) The capital gain respondent
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