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Northwest, the assignee of the Note and mortgage, received
$86,300 of the sales proceeds in satisfaction of the Note, and
other proceeds of the sale were used to pay some of petitioner's
liabilities. One of these liabilities was $1,349 of legal fees
which were incurred in connection with the sale. Petitioner
received $18,651 of the sales proceeds, exclusive of amounts paid
on her behalf.
Petitioner filed a 1991 Form 1040, U.S. Individual Income
Tax Return. Included therewith was a 1991 Form 2119, Sale of
Your Home, which reported that petitioner realized a $93,737 gain
on the sale of the residence and that she would be purchasing
another residence within the "replacement period" in order to
defer the gain. Petitioner computed her gain by subtracting her
$38,000 basis in the residence from its selling price of
$131,737.
Petitioner did not replace the residence within the
"replacement period". On or about August 28, 1996, petitioner
amended her 1991 Form 1040 by filing Form 1040X, Amended U.S.
Individual Income Tax Return. The Form 1040X reported that the
selling price of the residence was $29,402, that petitioner's
basis therein was zero, and that her gain on the sale was
$29,402.
Respondent determined that petitioner realized a $93,737
gain on the sale of the residence and that this gain was taxable
in 1991. Respondent asserts in brief that the determination of
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