                        T.C. Memo. 1995-535



                      UNITED STATES TAX COURT



                HENRY ALLEN WATERS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8798-93.       Filed November 13, 1995.



     Henry Allen Waters, pro se.

     Lori M. Mersereau, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     GERBER, Judge:   Respondent, by notice of deficiency,

determined that petitioner is liable for a deficiency in his 1989

Federal income tax and an addition to tax in the amounts of

$38,405 and $7,681, respectively.   The issues for decision are:

(1) Whether the gain realized by petitioner from the sale of his

principal residence qualifies for nonrecognition treatment under
                                   - 2 -

section 1034(a);1 (2) whether petitioner is entitled to an

interest deduction in excess of that allowed by respondent; and

(3) whether petitioner is liable for the accuracy-related penalty

under section 6662(a) for a substantial understatement of his tax

liability.

                             FINDINGS OF FACT2

     Petitioner resided in Fairfield, California, at the time his

petition was filed.

     During 1989, petitioner decided to sell his principal

residence in Richmond, California, with the intention of

purchasing a new home in the area.         In April 1989, prior to

selling his Richmond home, petitioner engaged the services of a

real estate agent to assist him in finding and purchasing a new

home.       Shortly thereafter, petitioner located a home he wanted to

purchase and applied to a mortgage financing company for a loan.

Petitioner's loan application was denied, however, because he had

filed for bankruptcy in 1988 and his obligations in that regard

had not yet been resolved.      At the time petitioner applied for

the loan, he was making payments of approximately $580 per month

pursuant to a debt repayment plan established in accordance with

his bankruptcy case.


        1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
        2
       The parties have stipulated facts and exhibits which are
incorporated by this reference.
                               - 3 -

     Petitioner continued his search for a new home and, in July

1989, attempted to purchase another house.     Once again,

petitioner's application for a loan was denied due to his recent

bankruptcy filing and his outstanding obligations under the debt

repayment plan.

     Meanwhile, petitioner found a buyer for his Richmond home,

and he agreed to sell the house for $125,000.     The grant deed

effectuating the transfer was signed by petitioner on July 24,

1989, and the transaction went to settlement on August 1, 1989,

at which time the deed was filed with the recorder's office in

Contra Costa County.   Total proceeds to petitioner were reduced

by (among other settlement charges) closing costs of $2,000 and

prorated property taxes of $80.44.     Settlement charges to the

purchaser were $5,735.36, including a loan origination fee of

$2,368.75.   Petitioner, presumably believing that he would be

eligible for nonrecognition treatment under section 1034(a), did

not report as taxable income on his 1989 return any gain from the

sale of his old residence.

     During 1989, up to the date he sold the property, petitioner

paid $7,532.08 in mortgage interest on his Richmond home.

Nevertheless, on his 1989 Schedule A--Itemized Deductions,

petitioner reported a home mortgage interest deduction of

$11,582, which amount presumably includes the $7,532.08 noted

above and a portion of the closing costs and other charges

reported on the settlement statement relating to the transfer of

the Richmond property.
                                - 4 -

     After selling his Richmond home, petitioner continued his

search for a new home and completed his obligations under the

debt repayment plan with a lump-sum payment in April 1990, at

which time petitioner's bankruptcy case was closed.

Petitioner's next attempt to obtain a loan for the purchase of a

new home occurred in May 1991, but he was again unsuccessful,

presumably due to his recent bankruptcy.

     During the ensuing 2 months, petitioner finally located and

succeeded in obtaining financing for the purchase of a home in

Fairfield, California.   Petitioner testified that he made a

deposit on his new home in July 1991, and that he received a key

and moved into the house prior to August 1, 1991.   The grant

deed, however, was not signed by the sellers until August 2,

1991, and the settlement date for the transfer was August 7,

1991.   Petitioner paid $137,500, excluding settlement charges,

for the house.

                               OPINION

     The first issue for decision is whether the gain realized by

petitioner in 1989 from the sale of his old residence qualifies

for nonrecognition treatment under section 1034(a).   Section 1034

allows a taxpayer to defer the recognition of gain realized from

the sale of his principal residence, provided he meets the

requirements of the statute.   It provides, in relevant part, that

when property used by a taxpayer as his principal residence is

sold by him and, within the period beginning 2 years before the

date of such sale and ending 2 years after such date, property is
                               - 5 -

purchased by the taxpayer and used as his principal residence,

gain shall be recognized only to the extent that the adjusted

sale price of the old residence exceeds the cost of purchasing

the new residence.

     Respondent argues that, for purposes of determining the

applicability of section 1034, the sale of petitioner's former

residence in Richmond and the purchase of his new residence in

Fairfield occurred on the respective settlement dates of the

transfers, August 1, 1989, and August 7, 1991.   Thus, respondent

argues that petitioner's new home was not purchased within 2

years of the sale of his old residence and that he is therefore

not eligible for nonrecognition treatment under section 1034(a).

Petitioner contends that he made a deposit on the Fairfield

property and moved into the home prior to August 1, 1991, and

further, that he made several attempts to purchase a new home

prior to that date but that he was unable to obtain financing due

to his bankruptcy filing.

     We note at the outset that the purchase of a new residence

within the period fixed by statute is a strict requirement for

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

authority to weigh the merits of the events precipitating delay

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

Elam v. Commissioner, 477 F.2d 1333, 1335 (6th Cir. 1973), affg.

per curiam 58 T.C. 238 (1972); Bayley v. Commissioner, 35 T.C.

288, 297 (1960).   Petitioner's circumstances, including the

bankruptcy, his inability to obtain financing, and his missing
                               - 6 -

the statutory deadline by a few days, are unfortunate and elicit

sympathy.   Courts, however, have consistently held that the time

limits of section 1034 are uniformly applicable and leave no room

for interpretation or tempering because of hard or unfortunate

circumstances, even where the taxpayer was prevented from

acquiring the new residence on time due to circumstances beyond

his control.   See Shaw v. Commissioner, 69 T.C. 1034, 1038

(1978), and cases cited therein.3    "Extensions of § 1034(a)'s

time limitations are available only when a specific statutory

provision so provides."   Moore v. Townsend, 577 F.2d 424, 428 n.7

(7th Cir. 1978).   Thus, petitioner's eligibility for

nonrecognition treatment depends solely on a determination of the

dates when the sale of his old residence and the purchase of his

new residence occurred, and we cannot consider any delay in

purchasing a new home caused by petitioner's personal bankruptcy.

     The question of when a sale is complete for Federal tax

purposes is essentially one of fact to be decided based on a

consideration of all the facts and circumstances with no single

factor controlling the outcome.     Derr v. Commissioner, 77 T.C.

708, 723-724 (1981); Baird v. Commissioner, 68 T.C. 115, 124

(1977).   A sale of real property is generally complete upon the

earlier of the transfer of legal title or the practical

assumption of the benefits and burdens of ownership by the


     3
       See also Chavez v. Commissioner, T.C. Memo. 1983-199;
Henry v. Commissioner, T.C. Memo. 1982-469; Bazzell v.
Commissioner, T.C. Memo. 1967-101.
                               - 7 -

purchaser.   Dettmers v. Commissioner, 430 F.2d 1019, 1023 (6th

Cir. 1970), affg. 51 T.C. 290 (1968); Derr v. Commissioner, supra

at 724; Baird v. Commissioner, supra at 124.

     In California, a grant deed evidencing the transfer of title

takes effect upon delivery by the grantor, or, if placed in

escrow, upon performance of the prescribed conditions and

delivery by the depositary.   Cal. Civ. Code secs. 1054, 1057

(West 1982); Blumenthal v. Liebman, 240 P.2d 699, 703 (Cal. Dist.

Ct. App. 1952).   In the present case, we agree with respondent

that the relevant property transfers occurred on August 1, 1989,

and August 7, 1991, the respective settlement dates of the

transfers.   Although petitioner contends that he made a deposit

on his new residence and moved into the home in July 1991, he has

not otherwise shown that he assumed the burdens/risks of

ownership prior to the passage of title on August 7, 1991.4     From

these facts, we are compelled to conclude that petitioner failed

to meet the statutory requirements of section 1034.

     While we sympathize with petitioner's plight--he undoubtedly

intended and diligently attempted to purchase a new residence

within the 2-year period required for the nonrecognition of gain

from the sale of his old residence--we are powerless to move a

line Congress has drawn.   We hold that petitioner has failed to




     4
       Petitioner has not shown, for example, that he was
responsible for and/or paid property taxes on his new home, or
that he maintained insurance on the property, for any period
prior to the date of settlement.
                                 - 8 -

show that he is qualified for nonrecognition under section

1034(a).

         In the notice of deficiency, respondent determined that

petitioner's gain on the sale of his old residence was equal to

the full sales price of the property; no reduction was taken for

petitioner's adjusted basis in the property, although such a

reduction is provided for in section 1001.     The Court brought

this matter to the attention of the parties, and they filed a

supplemental stipulation of facts agreeing that the $125,000

selling price included in petitioner's income should be reduced

by $10,780 of costs and expenses in connection with the sale.5

Accordingly, petitioner realized $114,220, rather than $125,000

as the net proceeds of sale.     In addition, the parties stipulated

that petitioner's adjusted basis in the property sold was

$77,806.25.     Accordingly, petitioner realized income of

$36,413.75 from the sale of the Richmond realty.     The parties

should reflect these differences from the notice of deficiency in

their Rule 155 computation.

     Next, we consider the home mortgage interest deduction of

$11,582 reported by petitioner on his 1989 return.     Petitioner

claims that this amount includes $7,532.08 in mortgage interest

paid, and several amounts reported on the settlement statement

petitioner received when he sold the Richmond property,

     5
       Petitioner claimed $2,000 of closing costs as part of an
interest deduction on his return. Respondent disallowed this
amount as part of a disallowance of a large amount of interest
claimed.
                                - 9 -

including:    Closing costs ($2,000), prorated property taxes

($80.44), and loan origination fees paid by the purchaser

($2,368.75).6   While petitioner erred in reporting these amounts

collectively as mortgage interest on his 1989 Schedule A, he is

nevertheless entitled to the following deductions: (1) Mortgage

interest--$7,532.08, and (2) property taxes--$80.44.    The $2,000

closing costs were reflected above as a selling expense in

calculating petitioner's gain from the sale of the Richmond

property.    Petitioner is not entitled to deduct the loan

origination fees because they were not paid by him.

     Finally, respondent determined an addition to petitioner's

tax for 1989 under section 6662(a) in the amount of $7,681.

Section 6662 imposes an accuracy-related penalty on a substantial

understatement of income tax.    The section provides that if there

is a substantial understatement of income tax, there shall be

added to the tax an amount equal to 20 percent of the amount of

any underpayment attributable to such understatement.    The

taxpayer bears the burden of proving that the Commissioner's

determination as to the addition to tax under section 6662(a) is

erroneous.    Rule 142(a).

     An understatement is substantial if it exceeds the greater

of 10 percent of the tax required to be shown on the return or

$5,000.   Sec. 6662(d)(1)(A).   An understatement is the difference

     6
       The amounts petitioner claims make up the mortgage
interest deduction total $11,981.27, or $399.27 more than the
deduction reported on petitioner's return. Petitioner did not
offer an explanation for this discrepancy.
                              - 10 -

between the amount required to be shown on the return and the

amount actually shown on the return.   Sec. 6662(d)(2)(A).   The

understatement is reduced, however, to the extent it is (1) based

on substantial authority or (2) adequately disclosed in the

return or a statement attached to the return.   Sec.

6662(d)(2)(B)(i) and (ii).   Neither exception is present here.

Therefore, if the recomputed deficiency under Rule 155 satisfies

the statutory percentage or amount, petitioner will be liable for

the addition to tax under section 6662(a).

     To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
