                  T.C. Summary Opinion 2001-41



                     UNITED STATES TAX COURT



                 MICHELE ANTHONY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17470-99S.                   Filed March 27, 2001.



     Michele Anthony, pro se.

     Douglas S. Polsky, for respondent.



     DINAN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
                              - 2 -

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined deficiencies in petitioner’s Federal

income taxes of $15,117 and $3,957 for the taxable years 1996 and

1997.

     After concessions by petitioner,1 the sole issue for

decision is whether, and if so to what extent, petitioner is

required to include in income long-term capital gain of $49,297

realized from the sale of her personal residence in 1996.

     Some of the facts have been stipulated and are so found.

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Lee’s Summit, Missouri, on the date the petition was filed in

this case.

     In 1973, petitioner and her former husband, Clinton Anthony,

purchased a residence in Compton, California, for $29,900.   They

made no major improvements to the residence.   On January 17,

1984, petitioner was divorced from Mr. Anthony in California.

Pursuant to the agreement, by deed dated March 14, 1984, Mr.




     1
      For taxable year 1996, petitioner concedes she is not
entitled to disallowed itemized deductions of $20,750, solely
contingent upon a possible computational adjustment to the
claimed medical expense deduction which may be required pursuant
to the Court’s holding on the remaining issue in this case. For
taxable year 1997, petitioner concedes the entire deficiency.
                                - 3 -

Anthony quitclaimed to petitioner his interest in the Compton

residence.

     In February 1994, petitioner was transferred by her employer

to Kansas City, Missouri.    The same month, the Compton residence

was appraised for Sumitomo Bank; its value was estimated to be

$135,500.    In March 1994, petitioner borrowed $100,000 from

Sumitomo Bank, granting a deed of trust against the Compton

residence in favor of the bank.    On or about May 12, 1994,

petitioner purchased a residence in Lee’s Summit, Missouri, for

$97,600.

     Petitioner began renting the Compton residence following her

employment transfer.    Petitioner started attempting to sell the

residence at least as early as August 1995, when she entered into

an agreement with a real estate agent.    She finally sold the

residence on September 27, 1996, for $119,000, incurring expenses

of $16,852.

     Petitioner filed Form 2119, Sale of Your Home, with her

Federal income tax return for taxable year 1996.    She reported

gain of $3,255 on this form, but did not include this amount in

gross income.    Respondent issued petitioner a statutory notice of

deficiency reflecting his determination that petitioner had

unreported long-term capital gain of $49,297 from the sale of the

Compton residence.
                                 - 4 -

     Under sections 61(a) and 1001(c), taxpayers generally must

recognize in the year of sale all gain or loss realized upon the

sale or exchange of property.2    Section 1034(a),3 however,

provides an exception under which, if certain requirements are

met, taxpayers defer recognition of gain when sale proceeds are

reinvested in a new principal residence.    The section reads in

pertinent part as follows:

          SEC. 1034(a). Nonrecognition of Gain.--If
     property (in this section called “old residence”) used
     by the taxpayer as his principal residence is sold by
     him and, within a period beginning 2 years before the
     date of such sale and ending 2 years after such date,
     property (in this section called “new residence”) is
     purchased and used by the taxpayer as his principal
     residence, gain (if any) from such sale shall be
     recognized only to the extent that the taxpayer’s
     adjusted sales price (as defined in subsection (b)) of
     the old residence exceeds the taxpayer’s cost of
     purchasing the new residence.

Petitioner purchased the Lee’s Summit residence on May 12, 1994,

but did not sell the Compton residence until September 27, 1996--

beyond the expiration of the section 1034(a) two-year period.

Petitioner urges this Court to relax the rigidity of the two-year

requirement for several reasons.    First, she used money from a



     2
      See also secs. 1221 through 1223 for the definition of a
capital asset and related terms, and sec. 1(h) for the rate of
tax imposed on long-term capital gains.
     3
      Sec. 1034 was repealed by sec. 312 of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, 111 Stat. 836, generally effective
for sales and exchanges after May 6, 1997. The sec. 1034
rollover provision was replaced by an expanded and revised sec.
121.
                                 - 5 -

mortgage of the Compton residence to purchase the Lee’s Summit

residence in order to avoid gain recognition in anticipation of

selling the Compton residence.    Second, she purchased the new

residence within several months of the time period.    Third, the

proceeds from the sale were used solely for home repairs and

related costs.    Despite these reasons, a relaxation of the

express requirements of the statute is not within our

jurisdiction:    We must apply the law as it is written by

Congress.   See, e.g., Waters v. Commissioner, T.C. Memo. 1995-535

(“the period fixed by statute is a strict requirement for

obtaining the benefits of section 1034, and * * * we are without

authority to weigh the merits of the events precipitating delay

to determine whether the time limits may be waived or extended”).

     We uphold respondent’s determination that petitioner is not

entitled to deferral of gain recognition on the sale of the

Compton residence under section 1034(a).4

     We next turn to an examination of the amount of gain

petitioner recognized.    Under section 1001, gain on the sale of

property generally is recognized in an amount equal to the excess

of the amount of money received over the adjusted basis of the

property.   Under sections 1011(a) and 1012, the adjusted basis



     4
      We need not discuss respondent’s alternative argument (and
the position taken in the notice of deficiency) that the Compton
residence ceased being petitioner’s personal residence and
instead became rental property prior to its sale.
                                - 6 -

generally is equal to the taxpayer’s cost of the property,

adjusted as required under section 1016.    The basis of community

property transferred pursuant to a divorce depends upon the

nature of the property division.5   If the division is a

nontaxable one, e.g., an equal division of strictly community

property, the transferee spouse receives each asset with a basis

equal to its basis to the community prior to division.     See

Carrieres v. Commissioner, 64 T.C. 959, 964-965 (1975), affd. 552

F.2d 1350 (9th Cir. 1977).   A taxable division causes different

results.   A taxable division occurs either from an unequal

division or from an exchange of separate property for virtually

all of the other spouse’s community property in an otherwise

equal division.   In these situations, where the transferee spouse

receives a whole asset, she receives it with a basis equal to

one-half the basis prior to division plus one-half the fair

market value of the property.   See id.    This is so because one-

half of the property is deemed to have been sold by the

transferor spouse to the transferee spouse at fair market value.

The transferee spouse keeps her original basis in her one-half

interest while receiving a cost basis for her spouse’s one-half


     5
      Sec. 1041 is not applicable in this case because the
transfer of Mr. Anthony’s interest in the Compton residence
occurred prior to July 18, 1984, and nothing in the record
indicates petitioner and Mr. Anthony elected to have sec. 1041
apply to the post-1983 transfer. See Deficit Reduction Act of
1984, Pub. L. 98-369, sec. 421, 98 Stat. 793.
                               - 7 -

interest which is deemed to have been sold to her.    See id.; sec.

1012.

     Respondent, assuming the division of property upon divorce

was an equal but taxable division, made the following

determination of the amount of gain on the sale of the Compton

residence:

           Selling price                 $119,000
           Selling expenses               (16,852)
           Adjusted basis                 (52,851)
           Gain on sale                    49,297

Respondent’s computation of the adjusted basis can be summarized

as follows.   First, respondent computed Mr. Anthony’s share of

the value of the home at the time of the divorce.    Using the

purchase price in 1973 of $29,900 and the appraised value in 1994

of $135,500, respondent computed yearly appreciation of $5,029

over the 21-year period.   Respondent then computed the value at

the time of the divorce in 1984 to be $85,219 (purchase price

plus 11 years appreciation), and thus Mr. Anthony’s share to be

$42,610.   Second, respondent computed petitioner’s adjusted basis

as follows:

     Petitioner’s share of purchase
      price (½ of $29,900)                           $14,950
     Mr. Anthony’s share of value at divorce          42,610
     Depreciation allowed in 1994-1996                (4,709)
     Adjusted basis                                   52,851
                                 - 8 -


Petitioner objects to this computation.    She argues that, as part

of the divorce agreement, the residence was quitclaimed to her in

lieu of any claim by her to alimony.     Because of this fact, she

objects to respondent’s division of the property into two

interests and having given her “credit” for only one-half.      As we

understand it, petitioner’s argument is that the basis of the

residence should have been equal to its full value, not one-half

its value plus one-half its cost.    Respondent’s position on the

basis of the residence is in accordance with the law, however,

and petitioner has not shown any of respondent’s factual

determinations to be in error.    Taking into account respondent’s

assumption that the division was an equal yet taxable division,

respondent’s calculations are in accordance with Carrieres v.

Commissioner, supra, in that petitioner received a basis in the

residence equal to one-half its cost plus one-half its value at

the time of the divorce.    If petitioner is arguing that the

division was equal but nontaxable, the result of her argument

would be recognition of a higher amount of gain because

petitioner’s basis in the residence would have been its original

cost (less depreciation), not its fair market value at the time

of the divorce.   See id.
                                 - 9 -

     We uphold respondent’s determination of the amount of gain

recognized on petitioner’s sale of the Compton residence.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         Decision will be entered

                                 for respondent.
