                                            MARVIN E. DEBOUGH, PETITIONER v. COMMISSIONER                                     OF
                                                     INTERNAL REVENUE, RESPONDENT
                                                    Docket No. 22894–12.                          Filed May 19, 2014.

                                                 P sold his primary residence in 2006 pursuant to an install-
                                               ment sale agreement. The buyers’ indebtedness was secured
                                               by the residence. Pursuant to I.R.C. sec. 121, P excluded
                                               $500,000 in gain on the sale. In 2009 the buyers defaulted on
                                               the deed and P reacquired the property. In a notice of defi-
                                               ciency to P, R determined that P was required to recognize
                                               long-term capital gain on the reacquisition of the property,
                                               including the $500,000 that P had previously excluded from
                                               gain. Held: P is required to recognize long-term capital gain
                                               on the reacquisition of the property, pursuant to I.R.C. sec.
                                               1038, including gain previously excluded under I.R.C. sec.
                                               121.

                                           Matthew L. Fling, for petitioner.
                                           John Schmittdiel and Randall L. Eager, for respondent.

                                                                                  OPINION

                                        NEGA, Judge: Respondent determined a deficiency in peti-
                                     tioner’s Federal income tax under section 1038(b) 1 of $58,893
                                     for taxable year 2009. The sole issue in this case is whether
                                     petitioner underreported his long-term capital gains as a
                                     result of his failure to recognize gain pursuant to section

                                       1 All section references are to the Internal Revenue Code (Code) in effect

                                     for the year at issue. All Rule references are to the Tax Court Rules of
                                     Practice and Procedure.

                                                                                                                                   297




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                                     1038 on the reacquisition of property where gain had been
                                     previously excluded under section 121.

                                                                                Background
                                       All of the facts in this case, which the parties submitted
                                     under Rule 122, have been stipulated by the parties and are
                                     so found except as stated below. Petitioner resided in Delano,
                                     Minnesota, at the time he filed his petition.
                                       Petitioner purchased his personal residence and the sur-
                                     rounding 80 acres of mixed-use land (property) in 1966 for
                                     $25,000. 2 On July 11, 2006, petitioner agreed to sell the
                                     property to the Stonehawk Corp. and Catherine Constantine
                                     Properties, Inc. (buyers), on a contract for deed of $1,400,000.
                                     The contract included the following terms:
                                           (a) Purchaser shall pay to Seller, at his direction, the sum of One Million
                                           Four Hundred Thousand and no/100 (1,400,000.00), as and for the pur-
                                           chase price (Purchase Price) for the Property, payable as follows:
                                           $250,000.00 in hand paid receipt of which is hereby acknowledged.
                                           Interest shall accrue on July 11, 2006.
                                           The balance of $1,150,000.00 shall be paid as follows:
                                           The sum of $250,000.00 is due on July 12, 2007 plus interest at the rate
                                           of five (5%) percent per annum.
                                           The balance of $900,000.00 shall be paid as follows:
                                           The sum of $25,000.00 which includes interest at the rate of five (5%)
                                           percent per annum shall be made on the 11th day of January 2008 and
                                           the 11th day of July 2008 and a like sum on the same two days of each
                                           year thereafter until July 11, 2014, when the entire balance shall
                                           become due and payable.

                                       Petitioner originally reported an adjusted basis in the
                                     property of $742,204. Petitioner calculated his basis in the
                                     property by adding (i) half of $25,000—the original cost of
                                     the home, (ii) half of $50,000—capital improvements before
                                     sale, (iii) $700,000—stepped-up basis from his deceased
                                     spouse, and (iv) $4,704—commissions and other expenses of
                                     sale. In the parties’ joint stipulation of facts, respondent and
                                     petitioner stipulated a basis of $779,704. 3 Using his origi-
                                           2 Petitioner’s
                                                      purchase cost is listed in various filings with the Court as
                                     either $24,000 or $25,000. The parties’ joint stipulation of facts uses
                                     $25,000 as his cost basis, and we use this number in our calculation of pe-
                                     titioner’s adjusted basis.
                                        3 We are unsure how petitioner and respondent arrived at this number.




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                                     nally calculated basis of $742,204, petitioner reported gain on
                                     the sale of the property of $657,796, the difference between
                                     the gross sale price of $1,400,000 and the adjusted basis of
                                     $742,204.
                                       After his wife’s death petitioner received a $250,000 pay-
                                     ment related to the sale of the property during the 2006 tax-
                                     able year. Petitioner and his deceased spouse reported this
                                     income on Form 6252, Installment Sale Income, attached to
                                     their Form 1040, U.S. Individual Income Tax Return, for the
                                     2006 taxable year. Petitioner and his deceased spouse cal-
                                     culated their reportable gain for tax year 2006 by (i)
                                     excluding $500,000 of gain pursuant to section 121, (ii) calcu-
                                     lating their gross profit percentage by dividing the $157,796
                                     in remaining gain ($657,796 – $500,000 = $157,796) by the
                                     $1,400,000 sale price exclusive of commissions and other
                                     costs of sale, and (iii) multiplying the gross profit percentage
                                     by the amount of money received in 2006. Petitioner reported
                                     installment sale gain for 2006 of $28,178 on the basis of
                                     these calculations.
                                       Petitioner received another $250,000 payment related to
                                     the property during 2007, which he reported on his 2007
                                     Form 1040. Using the same gross profit percentage as he
                                     used for 2006, petitioner reported $28,178 in taxable gain on
                                     his 2007 return. Petitioner received a $5,000 payment related
                                     to the property during 2008, which he reported on his 2008
                                     Form 1040. Again using the same gross profit percentage as
                                     he had used for 2006 and 2007, petitioner reported gain of
                                     $564 for 2008. In total, petitioner reported $56,920 in gain
                                     over the course of tax years 2006, 2007, and 2008.
                                       Subsequently, the buyers failed to comply with the terms
                                     of the contract for deed. On May 29, 2009, petitioner’s agent
                                     served the buyers with a notice of cancellation of contract for
                                     deed. The buyers failed to cure the default or to respond to
                                     the notice of cancellation of contract for deed. As a result,
                                     petitioner reacquired the property on or about July 29, 2009.
                                     Petitioner incurred $3,723 in costs related to repossession of
                                     the property.
                                       Petitioner treated his reacquisition of the property in 2009
                                     as a reacquisition of property in full satisfaction of indebted-

                                     However, stipulations are generally treated as conclusive admissions. Rule
                                     91(e). We therefore accept the parties’ stipulated basis.




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                                     ness under section 1038. Petitioner recognized $97,153 in the
                                     form of long-term capital gains related to the reacquisition of
                                     the property on his 2009 Form 1040. Petitioner subsequently
                                     filed an amended Form 1040A, U.S. Individual Income Tax
                                     Return, for 2009 that removed the $97,153 in long-term cap-
                                     ital gains. However, the parties have stipulated and agreed
                                     that petitioner was, at a minimum, obligated to report
                                     $97,153 in long-term capital gains related to the sale and
                                     reacquisition of the property for the 2009 taxable year.
                                        Respondent mailed petitioner a notice of deficiency (notice)
                                     dated June 18, 2012, prepared by the St. Paul Office of the
                                     Internal Revenue Service (IRS) with respect to tax year 2009.
                                     In the notice respondent determined that petitioner was
                                     required to recognize $443,644 in long-term capital gains
                                     related to the sale and reacquisition of the property.
                                     Respondent later recalculated this amount to be $448,080
                                     because of the omission of the $5,000 payment petitioner
                                     received in taxable year 2008 and respondent’s failure to
                                     account for the tax attributable to this payment that peti-
                                     tioner had previously reported under the installment sale
                                     method. Respondent calculated the $448,080 in long-term
                                     capital gains by subtracting the $56,920 petitioner had
                                     reported for tax years 2006, 2007, and 2008 from the total
                                     $505,000 in cash petitioner had received over those same
                                     years. Petitioner timely filed a petition with the Court
                                     seeking redetermination of the deficiency set forth in the
                                     notice.

                                                                                Discussion
                                     I. Burden of Proof
                                       Generally, the Commissioner’s determinations are pre-
                                     sumed correct, and the taxpayer bears the burden of proving
                                     otherwise. Rule 142(a); see Welch v. Helvering, 290 U.S. 111,
                                     115 (1933). The Commissioner typically bears the burden of
                                     proof with respect to any increase in deficiency. Rule 142(a).
                                     However, because our conclusions are based on the prepon-
                                     derance of evidence, we need not decide whether petitioner
                                     or respondent bears the burden of proof. See Knudsen v.
                                     Commissioner, 131 T.C. 185, 189 (2008).




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                                     (297)                         DEBOUGH v. COMMISSIONER                                        301


                                     II. Interplay of Sections 121 and 1038
                                        The sole issue for decision in this case involves the inter-
                                     play between sections 121 and 1038. Section 121 allows
                                     electing taxpayers to exclude gain resulting from the sale or
                                     exchange of property if the property has been owned and
                                     used as their principal residence for periods aggregating two
                                     or more years over the five-year period before sale. Section
                                     121(b) applies certain limitations on the amount of gain that
                                     can be excluded. Unmarried taxpayers may exclude up to
                                     $250,000 in gain from the sale of a qualifying residence. Sec.
                                     121(b)(1). Married taxpayers meeting certain requirements
                                     and filing a joint return can exclude up to $500,000 in gain
                                     from the sale of a qualifying principal residence. Sec.
                                     121(b)(2)(A). Taxpayers may exclude gain from the sale of a
                                     principal residence under section 121 only once every two
                                     years. Sec. 121(b)(3).
                                        Congress added section 1038 to the Code by the Act of Sep-
                                     tember 2, 1964, Pub. L. No. 88–570, sec. 2, 78 Stat. at 854.
                                     Before the enactment of section 1038, reacquisition of real
                                     property was treated as a taxable exchange under section
                                     453. S. Rept. No. 88–1361, at 5 (1964), 1964–2 C.B. 828, 831.
                                     If, as in this case, the initial sale of the property was
                                     reported as an installment sale, gain or loss on reacquisition
                                     of the property was treated as the difference between the fair
                                     market value of the property at the time of reacquisition,
                                     including improvements thereon, and the basis of the pur-
                                     chaser’s obligations which were discharged by the reposses-
                                     sion of the property. Sec. 1.453–5(b)(2), Income Tax Regs.
                                     Congress added section 1038 to remedy situations where tax-
                                     payers were forced to recognize gain upon repossession of
                                     property by reference to the fair market value at the time of
                                     repossession. S. Rept. No. 88–1361, supra at 1–3, 1964–2
                                     C.B. at 828–829. Congress believed measuring gain in this
                                     manner was inappropriate ‘‘because (1) the taxpayer was
                                     actually in no better position than he was before he made the
                                     sale; (2) valuation at the time of repossession was difficult;
                                     (3) to tax the initial seller on gain at the time of repossession
                                     was to tax him on gain not yet realized; and (4) because the
                                     taxpayer had not received a monetary return with respect to
                                     the property, funds to pay the taxes may be unavailable.’’




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                                     Conners v. Commissioner, 88 T.C. 541, 544–545 (1987) (citing
                                     S. Rept. 1361, supra, 1964–2 C.B. at 828).
                                       Section 1038 provides rules for computing gain when a
                                     seller repossesses real property in satisfaction of a debt
                                     secured by that real property. Generally, section 1038
                                     restores the seller to his position before the sale of the prop-
                                     erty by ignoring gain or loss upon repossession. However, if
                                     the seller has received ‘‘money and * * * other property’’ as
                                     payments before the repossession, section 1038 taxes the
                                     seller on gain attributable to these payments ‘‘to the extent
                                     that these amounts have not previously been reported as
                                     income.’’ Sec. 1038(b)(1); S. Rept. No. 88–1361, supra at 6,
                                     1964–2 C.B. at 832; see also Greene v. Commissioner, 76 T.C.
                                     1018, 1025 (1981) (‘‘Congress intended that the gain which a
                                     taxpayer would be responsible for reporting upon reposses-
                                     sion should not exceed the payments he actually had received
                                     prior to that time.’’). Specifically, section 1038(a) and (b) pro-
                                     vides:
                                           SEC. 1038. CERTAIN REACQUISITIONS OF REAL PROPERTY.
                                             (a) GENERAL RULE.—If—
                                               (1) a sale of real property gives rise to indebtedness to the seller
                                             which is secured by the real property sold, and
                                               (2) the seller of such property reacquires such property in partial or
                                             full satisfaction of such indebtedness,
                                           then, except as provided in subsections (b) and (d), no gain or loss shall
                                           result to the seller from such reacquisition, and no debt shall become
                                           worthless or partially worthless as a result of such reacquisition.
                                             (b) AMOUNT OF GAIN RESULTING.—
                                               (1) IN GENERAL.—In the case of a reacquisition of real property to
                                             which subsection (a) applies, gain shall result from such reacquisition
                                             to the extent that—
                                                  (A) the amount of money and the fair market value of other prop-
                                               erty (other than obligations of the purchaser) received, prior to such
                                               reacquisition, with respect to the sale of such property, exceeds
                                                  (B) the amount of the gain on the sale of such property returned
                                               as income for periods prior to such reacquisition.
                                               (2) LIMITATION.—The amount of gain determined under paragraph
                                             (1) resulting from a reacquisition during any taxable year beginning
                                             after the date of the enactment of this section shall not exceed the
                                             amount by which the price at which the real property was sold
                                             exceeded its adjusted basis, reduced by the sum of—
                                                  (A) the amount of the gain on the sale of such property returned
                                               as income for periods prior to the reacquisition of such property, and




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                                                  (B) the amount of money and the fair market value of other prop-
                                                erty (other than obligations of the purchaser received with respect
                                                to the sale of such property) paid or transferred by the seller in
                                                connection with the reacquisition of such property.
                                             For purposes of this paragraph, the price at which real property is sold
                                             is the gross sales price reduced by the selling commissions, legal fees,
                                             and other expenses incident to the sale of such property which are
                                             properly taken into account in determining gain or loss on such sale.
                                                (3) GAIN RECOGNIZED.—Except as provided in this section, the gain
                                             determined under this subsection resulting from a reacquisition to
                                             which subsection (a) applies shall be recognized, notwithstanding any
                                             other provision of this subtitle.

                                       A seller who reacquires section 1038 property adjusts his
                                     basis in the property in accordance with section 1038(c),
                                     which provides:
                                             SEC. 1038(c). BASIS OF REACQUIRED REAL PROPERTY.—If subsection
                                           (a) applies to the reacquisition of any real property, the basis of such
                                           property upon such reacquisition shall be the adjusted basis of the
                                           indebtedness to the seller secured by such property (determined as of the
                                           date of reacquisition), increased by the sum of—
                                               (1) the amount of the gain determined under subsection (b) resulting
                                             from such reacquisition, and
                                               (2) the amount described in subsection (b)(2)(B).
                                           If any indebtedness to the seller secured by such property is not dis-
                                           charged upon the reacquisition of such property, the basis of such
                                           indebtedness shall be zero.
                                       Congress contemplated the potential interaction between
                                     section 1038 and section 121 by including section 1038(e),
                                     which provides:
                                             SEC. 1038(e). PRINCIPAL RESIDENCES.—If—
                                               (1) subsection (a) applies to a reacquisition of real property with
                                             respect to the sale of which gain was not recognized under section 121
                                             (relating to gain on sale of principal residence); and
                                               (2) within 1 year after the date of the reacquisition of such property
                                             by the seller, such property is resold by him,
                                           then, under regulations prescribed by the Secretary, subsections (b), (c),
                                           and (d) of this section shall not apply to the reacquisition of such prop-
                                           erty and, for purposes of applying section 121, the resale of such prop-
                                           erty shall be treated as a part of the transaction constituting the original
                                           sale of such property.

                                     Section 1038(e) provides taxpayers with a ‘‘special rule’’ that
                                     ‘‘in effect ignores the repossession * * * where the residence
                                     is again sold in a reasonable time.’’ S. Rept. No. 88–1361,
                                     supra at 7, 1964–2 C.B. at 832.




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                                       Petitioner and respondent agree that section 1038(e) does
                                     not govern the instant case since petitioner did not resell the
                                     property within one year of repossession. However, they dis-
                                     agree about the import of section 1038(e). Respondent argues
                                     that section 1038(e) confirms that Congress was aware of the
                                     interplay between sections 1038 and 121 and drafted section
                                     1038(e) as a limited response thereto; the absence of a ‘‘more
                                     generous provision’’ regarding the overlap of sections 1038
                                     and 121 confirms that Congress intended for taxpayers in
                                     petitioner’s situation to be treated under the general rules of
                                     section 1038. Petitioner argues that if Congress had intended
                                     to completely nullify the section 121 exclusion upon
                                     reacquisition of a taxpayer’s principal residence, it would
                                     have drafted a provision explicitly so stating.
                                       Respondent further argues that because petitioner does not
                                     meet the requirements for special treatment under section
                                     1038(e), he is governed by the general rule under section
                                     1038(b) requiring him to recognize gain upon repossession of
                                     the property to the extent of money and other property
                                     received before repossession. For the reasons enumerated
                                     below, we agree with respondent.
                                           A. Section 1038 Applies to Sale and Reacquisition of the
                                              Property.
                                        The general rule of section 1038(a) is that if a sale of real
                                     property gives rise to indebtedness to the seller which is
                                     secured by the sold property and the seller reacquires such
                                     property in partial or full satisfaction of such indebtedness
                                     the seller does not recognize gain or loss upon the reacquisi-
                                     tion. Conners v. Commissioner, 88 T.C. at 543. Section
                                     1038(b) requires the seller to recognize gain if he has
                                     received ‘‘money’’ or ‘‘other property’’ to the extent these
                                     amounts exceed the amount of gain on the sale returned as
                                     income before reacquisition.
                                        By its terms, petitioner’s sale of his principal residence and
                                     subsequent reacquisition in satisfaction of indebtedness
                                     secured by the property falls within the ambit of section
                                     1038. Petitioner sold the property to the buyers in exchange
                                     for the contract for deed, which evidenced the buyers’ indebt-
                                     edness and petitioner’s security interest in the property.
                                     After the buyers defaulted on the contract for deed, peti-
                                     tioner reacquired his former residence in full satisfaction of




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                                     (297)                         DEBOUGH v. COMMISSIONER                                        305


                                     the indebtedness secured by the property. Stated simply, sec-
                                     tion 1038 applies squarely to the facts at issue. The only
                                     remaining inquiry, then, is whether petitioner must recog-
                                     nize gain previously excluded by reason of the section 121
                                     exclusion.
                                           B. Petitioner Must Recognize Gain Previously Excluded
                                              Under Section 121.
                                        Since section 1038 applies to the reacquisition of the prop-
                                     erty, we proceed to determine whether petitioner must recog-
                                     nize gain previously excluded under section 121. A reading of
                                     the statute leads to two important conclusions: (i) section
                                     1038(e) expressly contemplates the sale and subsequent
                                     reacquisition of a seller’s principal residence and (ii) other
                                     than section 1038(e), section 1038 does not contain any provi-
                                     sion that would allow a taxpayer to exclude section 121 gain
                                     resulting from a sale and subsequent reacquisition of a prin-
                                     cipal residence.
                                        As previously discussed, section 1038(e) contains a special
                                     rule for when the property sold is the taxpayer’s principal
                                     residence and the taxpayer resells the residence within one
                                     year of reacquisition. In fact, section 1038(e) is titled ‘‘Prin-
                                     cipal residences’’, indicating that Congress foresaw the poten-
                                     tial interaction of sections 1038 and 121. Section 1038(e) thus
                                     operates as an exception to the general rule of section 1038
                                     when the subject property is the seller’s principal residence.
                                     Sellers fulfilling the requirements of section 1038(e) are
                                     essentially allowed to collapse the initial sale and subsequent
                                     resale into one transaction. The legislative history behind the
                                     section 1038(e) exception is unclear as to why Congress lim-
                                     ited the exception to sellers who resell property within one
                                     year of reacquisition. Whatever the reasoning behind the
                                     exception, the relief offered by section 1038(e) is clearly lim-
                                     ited to those sellers who resell their principal residences
                                     within one year of reacquisition. Since petitioner did not
                                     resell the property within one year of reacquisition, he is
                                     ineligible for the section 1038(e) exception and must recog-
                                     nize gain in accordance with the general rules of section
                                     1038.
                                        Petitioner argues that ‘‘[t]he statute is devoid of any lan-
                                     guage indicating that the [s]ection 121 exclusion would be
                                     disallowed on a reacquisition’’. Petitioner also argues that we




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                                     should interpret the absence of any specific provision in sec-
                                     tion 1038 mandating recognition of previously excluded sec-
                                     tion 121 gain to mean that section 1038 does not apply to
                                     recapture section 121 gain under any circumstances. To the
                                     contrary, the flush language of section 1038(e) specifically
                                     provides that section 1038(b), (c), and (d) shall not apply to
                                     the reacquisition of a principal residence, but only if the
                                     seller resells the residence within one year of reacquisition.
                                     Petitioner is understandably confused since the special rule
                                     of section 1038(e) is stated in the negative: Sellers who
                                     reacquire a principal residence but then resell it within one
                                     year do not have to recognize gain under section 1038(b).
                                     However, the positive rule can be stated thusly: Sellers who
                                     reacquire a principal residence but do not resell it within one
                                     year must recognize any gain under section 1038(b) because,
                                     unless section 1038(e) applies, section 1038 overrides the
                                     exclusion under section 121.
                                        Additionally, the special rule in section 1038(e) calls to
                                     mind the statutory canon of construction ‘‘expressio unius est
                                     exclusio alterius’’, meaning that if a statute provides specific
                                     exceptions to a general rule, we may infer that Congress
                                     intended to exclude any further exceptions ‘‘ ‘in the absence
                                     of evidence of a contrary legislative intent.’ ’’ United States v.
                                     Smith, 499 U.S. 160, 167 (1991) (quoting Andrus v. Glover
                                     Constr. Co., 446 U.S. 608, 616–617 (1980)); Catterall v.
                                     Commissioner, 68 T.C. 413, 421 (1977), aff ’d sub nom.
                                     Vorbleski v. Commissioner, 589 F.2d 123 (3d Cir. 1978).
                                     Here, section 1038(e) is the only exception to the general rule
                                     of section 1038 requiring recognition of gain to the extent a
                                     seller receives money and other property before reacquisition.
                                     We are disinclined to carve out other exceptions to section
                                     1038 where Congress has not expressly done so.
                                           C. Recognition of Gain Conforms With the Intent of Section
                                              1038 and the Economics of the Transaction.
                                       Congress enacted section 1038 to remedy the hardship
                                     worked on sellers forced to recognize gain or loss purely on
                                     account of fluctuations in fair market value where upon
                                     repossession the sellers are in a position substantially
                                     similar to the position they were in before the sale. However,
                                     Congress limited the nonrecognition of gain only to any
                                     change in the value of the underlying property, not to cash




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                                     (297)                         DEBOUGH v. COMMISSIONER                                        307


                                     or other property received by the seller before reacquisition.
                                     Sec. 1038(b); S. Rept. No. 88–1361, supra at 5, 1964–2 C.B.
                                     at 831 (‘‘Your committee believes that it is inappropriate to
                                     measure gain upon repossession by reference to the fair
                                     market value of the repossessed property. * * * Apart from
                                     any payments he may have received, he actually is in no
                                     better position than he was before he made the sale.’’
                                     (Emphasis added.)). Section 1038(b) requires recognition of
                                     gain where a seller receives ‘‘money’’ or ‘‘other property’’
                                     before reacquisition and therefore occupies an improved posi-
                                     tion after reacquisition.
                                        Petitioner received $505,000 in cash before the reacquisi-
                                     tion of his former principal residence. Petitioner has received
                                     ‘‘money’’ as defined within section 1038(b) that exceeds gain
                                     previously returned as income on the sale of the property
                                     during periods before the reacquisition. We see nothing
                                     unfair in the Code’s taxing petitioner on receipt of this
                                     income, as he is actually in a better position than he was
                                     before the sale by virtue of having ownership over both the
                                     property and $505,000. See also Hovhannissian v. Commis-
                                     sioner, T.C. Memo. 1997–444, 74 T.C.M. (CCH) 752, 757
                                     (1997) (‘‘Section 1038(b) ensures that all receipts of cash and
                                     other property by the seller prior to reacquisition are taxed
                                     as income to return the seller to as close to status quo ante
                                     with respect to the reacquired property as circumstances will
                                     permit.’’). The section 1038(b) requirement of recognition of
                                     gain is ‘‘mandatory and does not excuse any taxpayer from
                                     recognizing gain and paying taxes thereon’’. Greene v.
                                     Commissioner, 76 T.C. at 1025; see also Kregear v. Commis-
                                     sioner, T.C. Memo. 1987–258, 53 T.C.M. (CCH) 869, 872
                                     (1987) (‘‘The language of section 1038, however, is manda-
                                     tory. We may not disregard the plain language of the
                                     statute.’’).
                                        Our decision ensures that tax treatment of the trans-
                                     actions matches the underlying economic reality. Petitioner
                                     received $505,000 in income and is taxed on that income
                                     absent any applicable exclusion or deduction.
                                           D. Our Interpretation of Section 1038 Accords With Basic
                                              Federal Income Tax Principles.
                                        Respondent contends and we agree that application of sec-
                                     tion 1038 to the case at hand is consistent with the funda-




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                                     308                 142 UNITED STATES TAX COURT REPORTS                                    (297)


                                     mental tenets of Federal tax law. Gross income has long been
                                     defined to include any accession to wealth, clearly realized,
                                     and over which the taxpayer has complete dominion.
                                     Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431
                                     (1955). Petitioner attempts to counter this basic principle of
                                     tax law by arguing that ‘‘every exclusion or deduction pro-
                                     vided by Congress creates an exception to the taxation of
                                     wealth ascended to, and it is not reasonable to assume that
                                     by remaining silent on the question, Congress intended to
                                     nullify a tax benefit it has created.’’ As noted, section 1038
                                     is not silent on the taxation of gain previously excluded
                                     under section 121 since section 1038(e) provides a special
                                     rule for sellers who resell a principal residence within one
                                     year of reacquisition. Further, petitioner’s argument
                                     acknowledges that it is Congress who must create exclusions
                                     and deductions in order for taxpayers not to be taxed on the
                                     receipt of income, and Congress has not created any exclu-
                                     sion or deduction applicable to petitioner. Petitioner’s
                                     $505,000 is clearly an accession to wealth, and we agree with
                                     respondent that section 1038, in the absence of any statutory
                                     exceptions, mandates inclusion of that amount in petitioner’s
                                     gross income.
                                       In reaching our holding, we have considered all arguments
                                     made, and, to the extent not mentioned above, we conclude
                                     they are moot, irrelevant, or without merit.
                                       To reflect the foregoing,
                                                                           Decision will be entered for respondent.

                                                                               f




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