Lee F. Parker and Diane K. Parker - Page 9




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          Thus, in general, courts have made clear that lack of actual                
          occupancy will thwart the attempts of even the most well-                   
          intentioned taxpayer to utilize the deferment rules of section              
          1034.                                                                       
                    Application to Construction and Improvements                      
               More specifically, this focus on actual use does not shift             
          when examination turns to what courts and legislatures have had             
          to say concerning construction and improvements.  As indicated              
          above, section 1034 explicitly provides that capital expenditures           
          for construction, reconstruction, and improvements may be                   
          included in the statutory cost of purchase.  However, to relieve            
          petitioners from the requirement that the separate structure be             
          put to some residential use within the prescribed time period               
          would be not only inconsistent with the history of the section,             
          but also illogical.                                                         
               As early as 1961, in interpreting the predecessor of section           
          1034 (section 112(n) of the 1939 Code), the U.S. Court of Appeals           
          for the Ninth Circuit concluded that “Congress intended to permit           
          the taxpayer to obtain the benefit, taxwise, only of so much of             
          the cost of construction of, or improvements to [emphasis added],           
          a new house as the taxpayer had constructed and used within the             
          eighteen month period herein applicable.”  Kern v. Granquist, 291           
          F.2d 29, 33 (9th Cir. 1961).  Since the 1939 Code provision, like           
          section 1034(c)(2), used the language “construction * * * and               






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