                  T.C. Summary Opinion 2004-41



                     UNITED STATES TAX COURT



          CRAIG F. AND LYNN M. REHBERG, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16822-03S.              Filed March 29, 2004.


     Craig F. Rehberg, pro se.

     Lisa M. Oshiro, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to

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

should not be cited as authority.



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 1994,
the taxable year in issue.
                                - 2 -

     This matter is before the Court on the parties’ cross-

motions for partial summary judgment under Rule 121.2     The issue

for decision is whether petitioners are liable for a tax

liability that petitioners reported on their Form 1040X, Amended

U.S. Individual Income Tax Return, for the taxable year 1994

(amended return).   We hold that they are.   Accordingly, as

explained in detail below, we shall grant respondent’s motion for

partial summary judgment and deny petitioners’ motion for partial

summary judgment.

Background

     The record establishes and/or the parties do not dispute the

following:

     At the time that the petition was filed, petitioners

(hereinafter referred to individually as Mr. Rehberg or Mrs.

Rehberg) resided in Bothell, Washington.

     On October 19, 1994, petitioners sold their home near

Seattle, Washington.3   Petitioners realized a gain of $53,226

from the sale of their home.4

     On or about April 14, 1995, petitioners timely filed a joint


     2
        All Rule references are to Tax Court Rules of Practice
and Procedure.
     3
        The evidence indicates that petitioners sold the house
because they needed funds for Mrs. Rehberg’s extensive medical
bills. Since 1988, Mrs. Rehberg has been suffering from
progressive-remissive multiple sclerosis.
     4
         All amounts are rounded to the nearest dollar.
                                     - 3 -

Form 1040, U.S. Individual Income Tax Return, for the taxable

year 1994 (1994 tax return).         On their 1994 tax return,

petitioners excluded from gross income their $53,226 capital

gain.       By way of explanation, they attached Form 2119, Sale of

Your Home, to their 1994 tax return.             On Line 9 of Form 2119,

petitioners marked “Yes” to the question:              “If you haven’t

replaced your home, do you plan to do so within the replacement

period?”5

     Petitioners, however, did not purchase a replacement home

within the replacement period.6        On March 22, 2001, petitioners

filed an amended return for the taxable year 1994.             On the

amended return, petitioners reported the $53,226 capital gain

from the sale of their primary residence, and the tax due of

$14,360 on the additional income.          In Part II, Explanation of

Changes to Income, Deductions, and Credits, of the amended



        5
        Instructions for Form 2119 set forth additional filing
requirements, which state, in pertinent part:

        You must file Form 1040X, Amended U.S. Individual
        Income Tax Return, for the year of sale with the second
        Form 2119 attached if any of the following apply:

                         *   *   *     *     *     *    *

          2. You planned to replace your home when you
     filed your tax return but did not do so within the
     replacement period.
     6
        For the year in issue, the replacement period begins 2
years before the date of the sale of a taxpayer’s principal
residence and ends 2 years after such date. Sec. 1034(a).
                                 - 4 -

return, petitioners stated:

     Taxpayer [sic] sold their home in 1994 and reported the
     sale on Form 2119 attached to the original 1994 return.
     The Taxpayers have not replaced their home within the
     time limit proscribed [sic] by law and are amending
     their 1994 & 1999 returns to report the gain on the
     sale of the home on 1994 instead of 1999.[7]

Petitioners did not enclose payment with their amended return of

any part of the liability reported therein.8

     On April 23, 2001, respondent assessed against petitioners

income tax in the amount of $14,360, as well as interest as

provided by law, for the taxable year 1994.9   (We shall refer to

the unpaid balance of the assessment for the taxable year 1994,

as well as any accrued interest as provided by law, as

petitioners’ unpaid liability.    See Washington v. Commissioner,

120 T.C. 114, 116 (2003).)    On or about that same time,

respondent sent petitioners a notice of balance due informing

them that they had a liability for 1994 and requesting that they

pay it.   Petitioners did not make any payment.

     On July 3, 2002, respondent sent petitioners a Final Notice


     7
        There is nothing in the record to explain petitioners’
reference to their 1999 return.
     8
        Generally, when a return of tax is made and an amount of
tax is shown on the return, the person making the return shall,
without assessment or notice and demand, pay such tax at the time
and place the return is filed. Sec. 6151(a).
     9
        We note that   respondent based the assessment on
petitioners’ amended   return. Sec. 6201(a)(1). Respondent did
not, therefore, need   to send petitioners a notice of deficiency
for the taxable year   1994.
                                 - 5 -

Of Intent To Levy And Notice Of Your Right To A Hearing

concerning petitioners’ unpaid liability.

     On July 29, 2002, petitioners timely filed with respondent

Form 12153, Request for a Collection Due Process Hearing.

     On May 13, 2003, Mr. Rehberg attended an administrative

hearing conducted at respondent’s Appeals Office in Seattle,

Washington.    Throughout petitioners’ Appeals consideration, the

parties exchanged substantial correspondence concerning

petitioners’ distressed financial situation and collection

alternatives.

     On August 28, 2003, the Appeals Office sent petitioners a

Notice of Determination Concerning Collection Action(s) Under

Sections 6320 and/or 6330 (notice of determination) concerning

petitioners’ unpaid liability.    In the notice of determination,

the Appeals Office stated that respondent’s determination to

proceed with collection by way of levy should be sustained.

     On October 1, 2003, petitioners filed a Petition for Lien or

Levy Action Under Code Section 6320(c) or 6330(d) challenging

respondent’s determination.10    In the petition, petitioners

state:

     Liability is for capital gains taxes on our primary
     residence.
     -Asking for relief under 1997 law for one time
     exclusion of capital gains tax for sale of residence.


     10
           The petition was timely mailed to the Court on Sept. 26,
2003.     Secs. 6330(d), 7502(a).
                               - 6 -

     Lynn M. Rehberg has chronic illness (probable multiple
     sclerosis) since 1989. This led to sale of house and
     contributed greatly to our financial burden.
     -Possibly past (3) year deadline for collecting the
     tax.

     As stated, the parties filed cross-motions for partial

summary judgment.   The issue for decision in this opinion is

whether petitioners are liable for their unpaid liability.

Discussion

     A partial summary adjudication may be made that does not

dispose of all the issues in a case if it is shown, inter alia,

that there is no genuine issue of material fact with respect to

the question on which partial summary adjudication is sought.

Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), affd. 17 F.3d 965 (7th Cir. 1994).   Based on our review

of the record, we are satisfied that there is no genuine issue as

to any material fact and that partial summary judgment may be

rendered as a matter of law.

     A taxpayer may challenge the existence or amount of the

underlying tax liability in a levy case if the taxpayer did not

receive a statutory notice of deficiency or did not otherwise

have an opportunity to dispute such tax liability.   Sec.

6330(c)(2)(B), as effective for collection actions initiated

after January 18, 1999; Montgomery v. Commissioner, 122 T.C. 1

(2004).   In the instant case, petitioners may challenge their

underlying liability because they did not receive a statutory
                                 - 7 -

notice of deficiency for 1994 or otherwise have an opportunity to

dispute their unpaid liability for that year.        Consequently, we

shall review de novo.    Sego v. Commissioner, 114 T.C. 604, 610

(2000).

     For the year in issue, section 1034(a) provides, in general,

for the complete nonrecognition of gain if the replacement

residence having a cost at least equal to the adjusted sale price

of the old residence was purchased within 2 years before or after

the sale of the old principal residence.11       Section 1034(j)

governs the statutory period for the assessment of any deficiency

attributable to a gain from the sale of a taxpayer’s primary

residence.   Section 1034(j) provides, in pertinent part, as

follows:

          (1) the statutory period for the assessment of any
     deficiency attributable to any part of such gain shall
     not expire before the expiration of 3 years from the
     date the Secretary is notified by the taxpayer (in such
     manner as the Secretary may by regulations prescribe)
     of--

                     *   *   *    *      *   *   *

          (B) the taxpayer’s intention not to purchase a new
     residence within the period specified in subsection
     (a), or



     11
        Sec. 312(b) of the Taxpayer Relief Act of 1997 (TRA
1997), Pub. L. 105-34, 111 Stat. 839, repealed the sec. 1034
rollover provision generally effective for sales and exchanges of
principal residences after May 6, 1997. TRA 1997 sec. 312(a),
111 Stat. 836, replaced the sec. 1034 rollover provision with a
revised and expanded sec. 121 generally effective for sales and
exchanges after May 6, 1997.
                                  - 8 -

          (C) a failure to make such purchase within such
     period; and

          (2) such deficiency may be assessed before the
     expiration of such 3-year period notwithstanding the
     provisions of any other law or rule of law which would
     otherwise prevent such assessment. [Emphasis added.]

     Petitioners do not dispute that their tax liability was what

they themselves reported on their amended return.     Petitioners

first contend, however, that respondent assessed them for their

unpaid liability beyond the 3-year period of limitations for

assessment.   See sec. 6501(a).    In support of this contention,

petitioners contend that the 3-year period of limitations began

on or about April 14, 1995, when petitioners filed their 1994 tax

return, and expired on or about April 14, 1998.     Respondent,

however, argues that the assessment of petitioners’ unpaid

liability was timely under section 1034(j).     We agree with

respondent.

     On or about April 14, 1995, petitioners timely filed their

1994 tax return notifying respondent of their intention to roll

over the gain from the sale of their home into a new residence.

See sec. 1034(a).   Petitioners, however, did not at any time roll

over their gain into the purchase of a new home.     On March 22,

2001, petitioners filed an amended return notifying respondent

that they failed to purchase a replacement home within the

specified time period under section 1034(a), and petitioners

reported the gain realized from the sale of their home in 1994.
                                 - 9 -

On April 23, 2001, respondent assessed against petitioners the

amount of tax reported on their amended return.    As such, the

assessment in this case is attributable in its entirety to the

gain that petitioners realized on the sale of their home in 1994.

The period of limitation for the assessment of such gain is,

therefore, governed by section 1034(j).    Applying section 1034(j)

to the facts of this case, respondent’s 3-year period of

limitations to assess the tax for the taxable year 1994 began on

March 22, 2001, when petitioners notified respondent that they

failed to purchase a replacement home.    Respondent assessed

petitioners on April 23, 2001.    We conclude that respondent’s

assessment of petitioners’ unpaid liability was made within the

period of limitations.

     In the alternative, petitioners request an “exemption under

the 1997 tax law allowing a one-time exclusion of the capital

gains tax resulting from the sale of a residence.”12   In their

motion, petitioners state, in pertinent part, as follows:

     a. The sale of the petitioner’s residence was for
     medical concerns. To the petitioner’s understanding
     the one time exclusion tax law was enacted, in part, to
     allow homeowners the use of the capital gains from
     their primary residence to pay medical expenses. The
     petitioner’s have met this intent of the law.

Respondent, however, contends that petitioners do not qualify for


     12
        For the year in issue, sec. 121 provides a taxpayer, who
attained the age of 55, a one-time exclusion of gain up to
$125,000 from the sale of a principal residence. We note that
petitioners had not attained the age of 55 in 1994.
                               - 10 -

the one-time exclusion under the 1997 tax law.   We agree with

respondent.

     In general, TRA 1997 sec. 312(a), 111 Stat. 836, amended

section 121 of the Internal Revenue Code to allow a taxpayer to

exclude from income up to $250,000 ($500,000 for married

individuals filing jointly) of gain on the sale of a residence.

Further, TRA 1997 section 312(a) provided a prorated exclusion by

reason of a change in place, health, or unforeseen circumstances.

Section 312 of TRA 1997 is effective for sales and exchanges

after May 6, 1997.   TRA 1997 sec. 312(d), 111 Stat. 841.

     In the instant case, petitioners sold their home on October

19, 1994.   Petitioners, however, did not purchase a replacement

home because they exhausted their finances on Mrs. Rehberg’s

medical bills.   Petitioners contend that using the gain from the

sale of their home to pay for medical expenses comports with the

the intent of TRA 1997.   Unfortunately, petitioners’ date of sale

is well before May 6, 1997, which is the effective date of TRA

1997.   Although we are sympathetic to petitioners’ plight, this

Court is without authority to extend the effective date of TRA

1997 to afford petitioners the benefits provided under the

statute.    Buerer v. United States, 141 F. Supp.2d 611 (W.D.N.C.

2001) (denying relief to a taxpayer who sold her home on April

25, 1997); see, e.g., Henry v. Commissioner, T.C. Memo. 1982-469

n.2 (“the Courts are without authority to weigh the merits of the
                               - 11 -

events precipitating delay to determine whether the time limits

may be waived or extended”).

     We have considered all of the other arguments made by the

parties, and, to the extent that we have not specifically

addressed them, we conclude they are without merit.

     In conclusion, we think it appropriate to observe that we

found taxpayers to be very conscientious taxpayers who obviously

take their Federal tax responsibilities quite seriously.    We are

sympathetic to the hardship that Mrs. Rehberg’s medical condition

has brought to petitioners’ lives, and we acknowledge that

petitioners used their capital gains for laudable purposes.

Nevertheless, we are constrained to grant respondent’s motion

based on the applicable law.

     For the reasons stated, we shall grant respondent’s motion

for partial summary judgment and deny petitioners’ motion for

partial summary judgment.

     In closing, we note that petitioners have offered a

collection alternative in the form of an offer in compromise,

which respondent is currently evaluating.   If the parties are

unable to agree on this (or another) collection alternative, then

the Court will, in due course, calendar this case for trial on

all relevant issues other than the existence or amount of

petitioners’ underlying tax liability.

     Reviewed and adopted as the report of the Small Tax Case
                            - 12 -

Division.

    To reflect the foregoing,

                                      An appropriate order

                                 will be issued.
