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residence for periods aggregating 3 years or more of the 5-year
period ending on the date of the sale or exchange and if the
taxpayer attained the age of 55 before the date of the
transaction. Gain from a sale or exchange of property is subject
to deferral under section 1034 if the property was used by the
taxpayer as his principal residence and the taxpayer acquires a
new principal residence within the 2-year period preceding or
following the sale of the old residence.
Just as section 1034(a) grants the taxpayer an extended
period to complete a section 1034 transaction with the
acquisition or construction of a new residence, section 1034(j)
in turn grants the Commissioner an extended period of time within
which to assess any deficiency attributable to gain from the sale
or exchange property that the taxpayer has characterized as his
principal residence.
Contrary to petitioners’ position, the statutory scheme does
not suggest that Congress intended bifurcated examinations of
section 1034 transactions. In other words, rather than require
the Commissioner to conduct one examination to determine whether
the property sold was the taxpayer’s principal residence and a
second examination to determine whether the property purchased
qualifies as a new principal residence, section 1034(j) permits
the Commissioner to examine all aspects of the transaction at
once. In this regard, section 1034(j)(1) plainly provides that
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Last modified: May 25, 2011