Opinion ID: 276638
Heading Depth: 1
Heading Rank: 1

Heading: Recognition of Gain on the Sale of Carlos and Jacqueline Marcello's Residence.

Text: 3 Carlos Marcello purchased a residence in July 1946 for $42,500 and sold it in December 1958 for $101,963.85. An Act of Sale, dated March 31, 1958, reflects that Louisa Marcello, Carlos' mother, purchased in her name a residence in Metairie, Louisiana, for $110,000. Louisa in a notarized affidavit deposed that the title to this property was placed in her name for convenience only; that the property was bought by and for the account of Carlos Marcello; that Carlos paid the purchase price; that she agreed to bind herself, her heirs, executors and administrators to convey such property to Carlos, his heirs, executors and assigns whenever required to do so; and that, in making such conveyance to Carlos, no consideration is to be paid though one might be stipulated and declared to be paid in the deed of conveyance. 4 Section 1034(a) of the 1954 Internal Revenue Code, 26 U.S.C.A. § 1034(a), provides that if within a year before or after the sale of a taxpayer's residence, the taxpayer purchases and uses a new residence, the gain on the sale of the old residence to the extent of the cost of purchasing the new residence is not recognized. 2 5 The Tax Court held that Carlos and Jacqueline failed to prove that they purchased the new residence. Though the Tax Court found that Carlos made periodic mortgage payments for the new residence, it did not find that these payments were for his purchase of the new house. Neither was there a finding that Carlos and Jacqueline made an initial down payment, as claimed by the taxpayers. The Commissioner suggests that the mortgage payments could either have been means of paying rent to Louisa or repayments of a loan. 3 We do not speculate on the reasons Carlos made these mortgage payments. We do agree, however, with the Tax Court that within the meaning of Section 1034 Carlos was not the purchaser of the new residence. 6 The aim of Section 1034 is not to ignore the realization of gain but only to postpone recognition thereof and to defer the tax. 4 A taxpayer is not entitled to the postponement benefit unless he purchases a new residence within the subscribed time period. Congress intended to enable homeowners to use the sales proceeds from a sale of the old residence for buying their own home. The purpose of Section 1034 was not to permit a taxpayer to re-invest the proceeds from the sale of his home in the home of another person without recognizing for federal income tax purposes the gain realized by the sale. 5 The clear statutory language requires that a new residence be purchased and used by the taxpayer. That the residence must be owned by the taxpayer is made evident by the exception in subsection (g) of Section 1034 permitting either the husband or the wife to hold the residence in his or her name. 6 If a third party owns the residence, the purchase requirements are not met. 7