Rowland G. and Valerie J. Pilaria - Page 11




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          further observe that there is no direct reference to section 121            
          in section 6501.  However, paragraph (4) of section 6504, titled            
          “Cross References”, provides:  “For limitation period in case               
          of–- * * * (4) Gain upon sale or exchange of principal residence,           
          see section 1034(j).”                                                       
               D.  Current Law                                                        
               As an epilogue to the preceding discussion, section 121 was            
          amended, and section 1034 was repealed, under the Taxpayer Relief           
          Act of 1997 (TRA), Pub. L. 105-34, sec. 312(a) and (b), 111 Stat.           
          836, 839, generally effective with respect to sales and exchanges           
          after May 6, 1997.  TRA section 312(a) and (b) provides that all            
          taxpayers may elect to exclude from gross income up to $250,000             
          of gain ($500,000 for joint filers) realized on the sale or                 
          exchange of a principal residence.                                          
               E.  The Parties’ Positions                                             
               Petitioners do not dispute that the period of limitations              
          under section 1034(j) would apply to a determination that the new           
          residence that they purchased in 1997 does not qualify as their             
          principal residence within the meaning of section 1034.  However,           
          petitioners assert that the general 3-year period of limitations            
          under section 6501(a) bars respondent from determining that the             
          old residence (the Solvang property) was not their principal                
          residence under section 121 or section 1034.  Petitioners contend           
          that the general 3-year period of limitations expired in this               






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