# Internal Code 121 Question - new thread

E

#### Ed Durall

Reading all the responses to the original thread made me
realize how wrong my initial response was. It was due to
the implied assumption that the owner had to be living in
the house at the time of the sale. Looks like others fell
into that same trap. That's wrong.

Let's say the original poster moved out the the first house
on Sep. 15, 2003. No matter where he lives, he has until
Sep.14, 2006 to sell the house and still meet the 730 day
requirement for the exclusion.

A

#### A.G. Kalman

Ed said:
Reading all the responses to the original thread made me
realize how wrong my initial response was. It was due to
the implied assumption that the owner had to be living in
the house at the time of the sale. Looks like others fell
into that same trap. That's wrong.

Let's say the original poster moved out the the first house
on Sep. 15, 2003. No matter where he lives, he has until
Sep.14, 2006 to sell the house and still meet the 730 day
requirement for the exclusion.
This post raises a few points I have always wondered about.
Namely, what is the actual time period one uses for the
lookback period and the use and ownership tests. Keep in
mind that there are two methods for computing the two year
use and ownership test. One can use a full 24 months or one
can use 730 days.

I browsed the Regs and have included the answer with each
question.

1. If one moves out of a main home on 2/1/98, does that day
count as a day of use for the use test? Example 3 in the
Regs counts that day. (This also holds for the first day of
use. It is the day you move in.)

2. If the closing date is 5/25/00, does that day count as a
day of ownership for the ownership test? Example 3 in the
Regs counts that day as a day of ownership.

3. If one closes on the sale of a house on 10/15/03, what is
the first day in 1998 of the five year lookback period?
There are no examples in the Regs. However, the period is
defined as 5 years of ownership ending on the date of sale.
As 10/15/03 is the date of sale, I would think that the
first day in 1998 would be 10/16.

4. If one buys a house on 1/18/97 what is the first day of
ownership? Example 3 in the Regs says it would be 1/19/97,
the next day.

D

#### D. Stussy

Ed said:
Reading all the responses to the original thread made me
realize how wrong my initial response was. It was due to
the implied assumption that the owner had to be living in
the house at the time of the sale. Looks like others fell
into that same trap. That's wrong.

Let's say the original poster moved out the the first house
on Sep. 15, 2003. No matter where he lives, he has until
Sep.14, 2006 to sell the house and still meet the 730 day
requirement for the exclusion.
Not sufficient - per the U.S. District Court (Arizona),
CV02-0261, James M. Guinan v. U.S. (Another response by me
erred by attributing it to the Tax Court).

The property must also qualify as the residence used for the
majority of the time ON A PER-YEAR BASIS for two of the
years in the 5 year period, thus being established as the
PRIMARY residence. That is not the same as simple 730 days
use in the past 5 years (although there must ALSO be at
least 730 days of usage in the 5 year period).

The case above involved periods where the taxpayer owned
multiple residences at the same time. For taxpayers who
"serially" own their residences (i.e. ONE at a time), this
is not usually a problem.

A

#### Arthur Kamlet

4. If one buys a house on 1/18/97 what is the first day of
ownership? Example 3 in the Regs says it would be 1/19/97,
the next day.
The holding period for capital property has always been the
day following the trade date.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

A

#### Arthur L. Rubin

D. Stussy said:
Not sufficient - per the U.S. District Court (Arizona),
CV02-0261, James M. Guinan v. U.S. (Another response by me
erred by attributing it to the Tax Court).

The property must also qualify as the residence used for the
majority of the time ON A PER-YEAR BASIS for two of the
years in the 5 year period, thus being established as the
PRIMARY residence. That is not the same as simple 730 days
use in the past 5 years (although there must ALSO be at
least 730 days of usage in the 5 year period).
That is also not consistent with the law and regulations.
"Main home" (not "primary residence") probably needs to
be defined the same way as in the regulations for the
mortgage interest deductions. Using "per-year" calculations
is clearly contrary to both the law and regulations.

But I haven't read the court ruling, so it's possible
that it's saying something different than the way I
interpret your interpretation of it.

E

#### Ed Zollars, CPA

Arthur said:
But I haven't read the court ruling, so it's possible
that it's saying something different than the way I
interpret your interpretation of it.
Actually, the IRS addressed this point in the final
regulations. In the explanation and summary of comments
accompanying the issuance of the final regulations last
year, the following is specifically noted:

"Other commentators questioned whether the property that a
taxpayer uses a majority of the time during the year should
generally be considered the taxpayer's principal residence,
arguing that the determination of the taxpayer's principal
residence should be judged on a day-by-day, rather than a
year-by-year, basis.

The final regulations continue to provide that the residence
that the taxpayer uses a majority of the time during the
year will ordinarily be considered the taxpayer's principal
residence." (Treasury Decision 9030, 12/23/2002)

As was noted earlier in the thread, in the Guinan case this
"one principal residence per year" method was applied.

D

#### D. Stussy

Arthur said:
D. Stussy wrote:
That is also not consistent with the law and regulations.
"Main home" (not "primary residence") probably needs to
be defined the same way as in the regulations for the
mortgage interest deductions. Using "per-year" calculations
is clearly contrary to both the law and regulations.
I disagree - but do agree that it may be contrary to the IRS
interpretation. Last time I checked, the Courts were
considered a higher authority than the IRS is, so what the
IRS cares to say about it doesn't seem to matter anymore.

Note that Guinan did not own his residences "serially" (one
at a time) but had ownership of 2 simultaneously (and 3 in
total over the 5 year period), so this may only apply to
situations where a taxpayer doesn't serially own his
residences.
But I haven't read the court ruling, ...
Taken with a grain of salt then (or should that be the
entire shaker?).

E

#### Ed Zollars, CPA

D. Stussy said:
I disagree - but do agree that it may be contrary to the IRS
interpretation. Last time I checked, the Courts were
considered a higher authority than the IRS is, so what the
IRS cares to say about it doesn't seem to matter anymore.
Different--not necessarily higher, and certainly not if it
is a United States District Court. I think Judge Rosenblatt
wrote a well reasoned opinion in the Guinan case and arrived
at the proper result with the facts available--but his
opinion is, at best, binding only if you can get your case
back in front of Judge Rosenblatt.

The United State Tax Court doesn't have to follow a District
Court opinion and quite often doesn't since, at times,
District Court opinions have a reputation of being "out
there" in tax cases <grin>.

For court cases, you look towards precedencial value. And,
absent the U.S. Supreme Court having ruled on a case, there
are multiple answers depending upon which venue your client
decides to go to court in. Technically you can file in Tax
Court (a national court), United States District Court (the
one that has jurisdiction for your filing) or the United
States Court of Claims (another national court). In the
first two cases, appeals go to the local Circuit Court of
Appeals for the taxpayer, while the latter has appeals heard
by the Federal Circuit.

For Tax Court, precedential cases that are binding are
United States Tax Court published cases, cases decided by
the Court of Appeal where the case at hand would be heard
and the United States Supreme Court. For the District
Court, the binding precedents are those issued by the Court
of Appeals to which the case would be appealed and the
United States Supreme Court. For the Court of Claims, you
look to the Federal Circuit and the United States Supreme Court.

Now, for Guinan to be binding, the Guinans will need to
appeal the finding. If the Ninth Circuit agrees with Judge
Rosenblatt on that issue and upholds his ruling based on
that analysis of the issue of "daily use" as opposed to
annual use, then it would be binding on District Courts in
the Ninth Circuit, and the Tax Court in cases it hears that
would be appealed to the Ninth. However, it would be, at
best, "advisory" in nature to the Court of Claims on any
case (including one that arose here in Arizona, home of
Guinan), as well as for the Tax Court outside the Ninth Circuit.

So, I would disagree that a court case is a higher authority.

As well, in this case Judge Rosenblatt was *upholding* the
IRS's regulation on the matter, so it's kind of a moot point
here <grin>.

S

#### Stuart O. Bronstein

Ed Zollars said:
D. Stussy wrote:
Different--not necessarily higher, and certainly not if it
is a United States District Court. I think Judge Rosenblatt
wrote a well reasoned opinion in the Guinan case and arrived
at the proper result with the facts available--but his
opinion is, at best, binding only if you can get your case
back in front of Judge Rosenblatt.
Generally the other judges in that same district will also

While technically courts are superior to the IRS in deciding
issues like this, the courts give great deference to IRS
regs and other interpretations and generally only overrule
them if they are considered inconsistent with a statute.
For court cases, you look towards precedencial value. And,
absent the U.S. Supreme Court having ruled on a case, there
are multiple answers depending upon which venue your client
decides to go to court in. Technically you can file in Tax
Court (a national court), United States District Court (the
one that has jurisdiction for your filing) or the United
States Court of Claims (another national court). In the
first two cases, appeals go to the local Circuit Court of
Appeals for the taxpayer, while the latter has appeals heard
by the Federal Circuit.
That's true. And technically different courts are not
required to follow each others' rulings. In practice,
though, courts do look at other court decisions and give
them a great deal of weight.

Stu