Lee F. Parker and Diane K. Parker - Page 10




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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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