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improvements made”, the court further declared that “We cannot in
good conscience rewrite the statute as though it included the
words ‘contractual liabilities incurred during the 18 months
period.’” Id.
In contrast, petitioners here contend that the completeness
of the improvements is immaterial; rather, the only question is
the amount paid in connection with capital improvements during
the reinvestment period. Section 1034 case law, however, fails
to support this view. There are no reported cases permitting
inclusion of costs incurred for the construction of a separate
structure not yet placed in residential use. Although in
Mitchell v. Commissioner, T.C. Memo. 1997-493, cited by
petitioners, the Court uses the terminology “commenced and/or
completed” in its discussion of whether the cost of renovations
could be included in a section 1034 calculation, the case is
distinguishable because the Court decided that the improvements
were not even commenced or paid for within the reinvestment
period.
The case law has denied nonrecognition treatment where
expenditures were made for residential structures not yet
occupied. For instance, in Elam v. Commissioner, 58 T.C. 238
(1972), affd. per curiam 477 F.2d 1333 (6th Cir. 1973), the
taxpayers sold their former residence and purchased property on
which they intended to build their new main residence and a guest
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