Terry Duane Beall and Joyce Engel Beall - Page 10

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          acquisition of 20 The Point.  Petitioners' 1988 Forms W-2 were              
          mailed to petitioners at Mary Street.  Petitioners' 1989 and 1990           
          Forms W-2 were mailed to the Alessandro office.                             
               In 1988, Marc and Julie both lived in Riverside.  At this              
          time, Terry's mother lived in San Bernardino, California.                   
          Issue 1. Whether Petitioners Must Recognize Gain From the Sale of           
          20 The Point                                                                
               As a general rule, gain realized from the sale or other                
          disposition of property must be recognized.  Sec. 1001(c).                  
          Section 1034, which provides an exception to this general rule,             
          allows a taxpayer to defer recognition of all or part of any gain           
          realized on the sale of a principal residence (old residence) if            
          other property is purchased and used by the taxpayer as a new               
          principal residence (new residence) within the period beginning 2           
          years before the date of the sale and ending 2 years after that             
          date (the replacement period).  Under section 1034(a), gain is              
          recognized only to the extent that the "adjusted sales price", as           
          defined in section 1034(b), of the old property exceeds the cost            
          of purchasing the new property.                                             
               The primary issue is whether petitioners' realized gain on             
          the sale of 20 The Point is entitled to the nonrecognition                  
          treatment of section 1034.  Respondent determined that section              
          1034(a) is inapplicable because 20 The Point was a business asset           
          and was not used by petitioners as their principal residence.               

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