Donna M. Bokman - Page 5

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               On August 10, 1999, respondent issued petitioner a statutory           
          notice of deficiency for 1995 with the determination that                   
          petitioner had unreported capital gain of $125,000.1  The notice            
          of deficiency stated that petitioner had elected out of the                 
          installment method and did not qualify for the claimed exclusion.           
          Petitioner concedes that she did not live in the residence for              
          the 3 years as she claimed on her return and is therefore not               
          entitled to the exclusion.  She argues that respondent’s                    
          determination is in error because her election out of the                   
          installment method was invalid.                                             
               As a general rule, taxpayers are required to use the                   
          “installment method” with respect to any income from an                     
          “installment sale”.  Sec. 453(a).  The installment method is a              
          method under which income is recognized in the year or years in             
          which payments are received.  Sec. 453(c).  An installment sale             
          generally is any sale in which at least one payment is to be                
          received after the close of the taxable year of the sale.  Sec.             
               Taxpayers may elect out of the otherwise mandatory                     
          installment method.  Sec. 453(d)(1).  Subject to exceptions not             
          applicable here, such an election must be made on or before the             
          due date (including extensions) for filing the taxpayer’s return            

          1All other adjustments in the notice of deficiency are                      
          computational and will be resolved by the Court’s holding on the            
          issue in this case.                                                         

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