Opinion ID: 2966695
Heading Depth: 4
Heading Rank: 2

Heading: so much of the gain on the sale of the old resi-

Text: dence as is not recognized solely by reason of this subsection, and so much of the adjustment under subsection (e) to the basis of the new residence as results solely from this subsection shall be allocated between the taxpayer and his spouse as pro- vided in such regulations. This subsection shall apply only if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence. On its face, paragraph (g)(1) seems to allow exactly what Mrs. Snowa needs: to use her share of the proceeds from the sale of the old residence as the adjusted sales price and to use both her share and Mr. Snowa's share of the cost as the cost of purchasing the new residence. By italicizing the words that apply to Mrs. Snowa and her current spouse and by adding some language for clarification, we see how paragraph (g)(1) operates, according to her: If the taxpayer and [her] spouse [consent to the decrease in basis, then] (1)(A) the taxpayer's adjusted sales price of the old residence is the adjusted sales price (of the taxpayer, or of the taxpayer and [her] spouse) of the old residence, and (B) the taxpayer's cost of purchasing the new residence is the cost (to the taxpayer, [her] spouse, or both) of purchasing the new residence (whether held by the taxpayer,[her] spouse, or the taxpayer and [her] spouse )[.] I.R.C. § 1034(g) (emphasis added). Mrs. Snowa does not have to stretch the meaning of any of the words of paragraph (g)(1). Mrs. Snowa is the taxpayer and Mr. Snowa is herspouse; the taxpayer and her spouse consented; the adjusted sales price of the Westminster residence is the adjusted sales price of the taxpayer; 11 and the cost of the Jamestown residence is the cost to both the taxpayer and her spouse. Mrs. Snowa fits within the operative language of § 1034(g). The IRS does not dispute Mrs. Snowa's reading of paragraph (g)(1), but it points to the flush language10 that follows, which states, This subsection [g] shall apply only if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence. I.R.C. § 1034(g). This sentence, the IRS argues, suggests that the taxpayer must be married to the same spouse when both buying the new residence and selling the old residence. The sentence refers to a taxpayer and his spouse, not a taxpayer and his spouses or a taxpayer and a spouse. Mrs. Snowa still might fit into the statute, however. Each residence was lived in by the taxpayer (Mrs. Snowa) and her spouse, albeit a different spouse in each. The statute is therefore ambiguous. Because Congress has not spoken directly to the issue, we must turn to step two of the Chevron analysis and consider whether the Treasury's interpretation is based on a permissible construction of the statute. See Chevron, 467 U.S. at 845; Jefferson-Pilot, 49 F.3d at 1022. Regulation § 1.1034-1(f) provides in relevant part, Such consent may be filed only if the old residence and the new residence are each used by the taxpayer and his same spouse as their principal residence. Treas. Reg. § 1.1034-1(f)(1) (emphasis added). This regulation, unlike the flush language in the statute, clearly requires that the taxpayer must live in both residences with the same spouse. The regulation does not explain why it interprets the statute as excluding taxpayers who remarry during the two-year replacement period. Our standard of review in determining whether an agency's regulation is valid depends on whether the regulation is legislative or interpretive. A regulation promulgated in the following circumstance is legislative: If Congress has explicitly left a gap for the agency to fill, _________________________________________________________________ 10 The phrase flush language refers to language that is written margin to margin, starting and ending flush against the margins. Flush language applies to the entire statutory section or subsection, in this case subsection 1034(g). See Reser v. Commissioner , 112 F.3d 1258, 1262 n.10 (5th Cir. 1997). 12 there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Chevron, 467 U.S. at 843-44. Legislative regulations are to be givencontrolling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. Id. at 844. Interpretive regulations, on the other hand, clarify ambiguous terms found in the statute or explain how a provision operates. Interpretive regulations are accorded considerable weight, id., and should be upheld if they implement the congressional mandate in a reasonable manner. National Muffler Dealers Ass'n, Inc. v. United States, 440 U.S. 472, 476 (1979); Schuler Indus., Inc. v. United States, 109 F.3d 753, 754 (Fed. Cir. 1997). See also Reich v. New York, 3 F.3d 581, 586 (2d Cir. 1993) ([T]he respect accorded the Secretary's interpretive regulations depends upon their persuasiveness; and we will accept that interpretation to the extent it assists us in applying the statute and the legislative rules.) (citing pre-Chevron cases). The IRS argues that Treasury regulation § 1.1034-1(f) is a legislative regulation and that the same spouse requirement must be given controlling weight. We disagree. Congress left a gap in the statute concerning how to file consent, and Congress directed the agency to fill that gap. It did not, however, leave an explicit gap in the statute as to who may qualify as a spouse. Section 1034(g) begins, If the taxpayer and his spouse, in accordance with regulations which shall be prescribed by the Secretary pursuant to this subsection, consent to the application of paragraph (2) . . . . I.R.C.§ 1034(g). The IRS argues that this language gives the Secretary of the Treasury responsibility for interpreting § 1034(g). Brief for Appellee at 46. This argument overstates the delegation of rulemaking authority here. The statutory language at the beginning of § 1034(g) instructs the Treasury to promulgate regulations outlining the administrative requirements a taxpayer and spouse must comply with to file their consent to the allocation of the decrease in basis. Consent is necessary because, when the basis in the new home is adjusted downward, part of the taxpayer's deferral becomes the spouse's future taxable gain. Congress instructed the Treasury to come up with rules ensuring that each spouse consents and delegated the authority to determine how, when, and where the form acknowledging consent must be filed. See Treas. Reg. § 1.1034-1(f)(2) (Such consent shall be filed with the district director with whom the taxpayer filed the return for the tax13 able year or years in which the gain from the sale of the old residence was realized.); I.R.S. Form 2119 (Sale of Your Home). Congress did not, however, delegate the power to determine who gets to file for consent to the allocation of basis. That determination was made by Congress in the statutory language, taxpayer and his spouse. Thus, Treasury Regulation § 1.1024-1(f)(1), which imposes the same spouse requirement, is not a legislative regulation, and we do not accord it controlling weight.