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time of the sale, section 1034 does not apply to defer any gain
from sale. Respondent relies on Perry v. Commissioner, 91 F.3d
82 (9th Cir. 1996), affg. T.C. Memo. 1994-247. Accordingly, the
sole question we consider is whether the Walnut Creek residence
was petitioner’s “principal residence” for purposes of section
1034. In the Perry case, the taxpayer had, because of a divorce,
left the home in question approximately 3 years before its sale.
In that case, the Court of Appeals for the Ninth Circuit held
that the home was not the taxpayer’s principal residence because
he had left it several years before it was placed for sale and
sold. In other words, the taxpayer had ceased to “physically
occupy and live in the house” long before it was intended to be
sold. Id. at 85. On the basis of that reasoning in Perry, it
appears that the taxpayer would not have met the 2-year before
and after rule of section 1034.
In this case, petitioner and Mrs. Corrigan used the Walnut
Creek home as their principal residence until some time in 1986
when they decided to sell it and each of them moved to new
residences, one of which was jointly purchased by petitioner and
Mrs. Corrigan. Unlike the taxpayer in Perry, petitioner did not
cease using the Walnut Creek home as his principal residence
several years before and then decide to sell it and reinvest in
another home. Petitioner and Mrs. Corrigan moved to new
residences and sold the Walnut Creek property within a relatively
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