                         T.C. Memo. 1998-415



                       UNITED STATES TAX COURT



                  SHARON YAKIRA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 27221-96.                Filed November 18, 1998.



     Steve Mather, for petitioner.

     Daniel M. Whitley, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     VASQUEZ, Judge:    Respondent determined a deficiency of

$145,517, an addition to tax under section 6651(a)(1) of $14,552,

and a penalty under section 6662(a) of $29,103 with respect to

petitioner's 1989 Federal income tax.1

     1
        All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
                                                   (continued...)
                               - 2 -


     After concessions,2 the issue for decision is whether

petitioner is entitled to nonrecognition of gain from the sale of

property located at 1276 Beverly Green Drive, Beverly Hills,

California (the California residence) under section 1034(a).3

                         FINDINGS OF FACT

     The parties submitted this case fully stipulated pursuant to

Rule 122, and the stipulated facts are so found.   The stipulation

of settled issues, the stipulation of facts, the first

supplemental stipulation of facts, and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Haifa, Israel, at the time she filed her petition.

     On January 20, 1989, petitioner sold the California

residence.   At the time of the sale, the California residence was

petitioner's principal residence within the meaning of section

1034(a).   Petitioner realized a gain on the sale of the

California residence in the amount of $409,199.

     1
      (...continued)
the Tax Court Rules of Practice and Procedure.
     2
        Respondent concedes that petitioner is not liable for the
addition to tax pursuant to sec. 6651(a)(1) and the penalty
pursuant to sec. 6662(a).
     3
        In the petition, petitioner argued that respondent is
barred by the expiration of the statutory period of limitations
from assessing the deficiency for 1989. Petitioner did not
address this issue on brief; therefore, we find that petitioner
abandoned this issue. Petzoldt v. Commissioner, 92 T.C. 661, 683
(1989). Furthermore, it is clear from the facts of this case
that the period of limitations was open when respondent issued
the statutory notice of deficiency.
                               - 3 -


     Bay Development, Ltd. (Bay), is a corporation incorporated

under the laws of Israel.   Petitioner is the sole shareholder and

director of Bay.

     On April 18, 1990, Bay purchased a house at 115 Yefe Nof

Street, Haifa, Israel (the Haifa property).   Bay paid a total of

$769,676 for the Haifa property.   Petitioner provided Bay with

all of the funds Bay used to purchase the Haifa property.    Upon

Bay's purchase of the Haifa property, it became petitioner's

principal residence.

     On October 15, 1990, petitioner timely filed a Form 1040 for

1989 (the return).   Petitioner attached a Form 2119, Sale of Your

Home, to the return.   On line 2a of the Form 2119, in response to

the question of whether petitioner had bought or built a new

"main home", petitioner placed an "x" in the box under the column

labeled "No".

                              OPINION

     Petitioner contends that she meets the requirements of

section 1034 and is entitled to defer recognition of the gain she

realized on her sale of the California residence.    Respondent

argues that petitioner failed to purchase a new residence within

the replacement period required by section 1034(a), and therefore

she does not qualify for nonrecognition treatment.

     Section 1034(a) provides for rollover of gain on the sale of

a principal residence:
                                - 4 -


     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.

     Section 1034 is strictly construed.   See Boesel v.

Commissioner, 65 T.C. 378, 386 (1975); see also Lokan v.

Commissioner, T.C. Memo. 1979-380; Bazzell v. Commissioner, T.C.

Memo. 1967-101.   If a taxpayer is to receive nonrecognition

treatment under section 1034, it is essential that he or she

maintain continuity of title.   See Starker v. United States, 602

F.2d 1341, 1351 (9th Cir. 1979); Marcello v. Commissioner, 380

F.2d 499, 502 (5th Cir. 1967), affg. on this issue and remanding

on other issues T.C. Memo. 1964-299; Boesel v. Commissioner,

supra; see also De Ocampo v. Commissioner, T.C. Memo. 1997-161;

Allied Marine Sys., Inc. v. Commissioner, T.C. Memo. 1997-101,

affd. without published opinion sub nom. Gibbons v. Commissioner,

155 F.3d 558 (4th Cir. 1998); Edmondson v. Commissioner, T.C.

Memo. 1996-393; May v. Commissioner, T.C. Memo. 1974-54.   This

requirement operates to prevent taxpayers from enjoying the

benefits of tax deferral while placing themselves in a position

as nontitleholders to escape future recognition.   See Boesel v.

Commissioner, supra at 388.
                                  - 5 -


     "The clear statutory language requires that a new residence

be purchased and used by the taxpayer."      Marcello v.

Commissioner, supra at 502.     If a third party owns the new

residence, the purchase requirement of section 1034(a) is

ordinarily not met.     Id.   The reasons for having a third party

purchase the new residence or the fact that the taxpayer provided

the third party with the funds to purchase the new residence are

simply not relevant.    See De Ocampo v. Commissioner, supra;

Allied Marine Sys., Inc. v. Commissioner, supra; Edmondson v.

Commissioner, supra; May v. Commissioner, supra.

     Petitioner chose to form Bay and have Bay purchase the Haifa

property.   Courts have repeatedly observed that "while a taxpayer

is free to organize his affairs as he chooses, nevertheless, once

having done so, he must accept the tax consequences of his

choice, whether contemplated or not".      Commissioner v. National

Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149 (1974).

Furthermore, nearly 6 months after Bay purchased the Haifa

property petitioner, on the Form 2119, stated that she had not

bought or built a new main home.

     Petitioner failed to obtain record title to the Haifa

property, or any other property that would qualify as a new

residence, during the replacement period.     This alone prevents

petitioner from deferring the gain realized on the sale of the

California residence.    See id.; Boesel v. Commissioner, supra.
                                 - 6 -


Thus, we sustain respondent's determination that the gain on the

California residence does not qualify for nonrecognition

treatment pursuant to section 1034.

     To reflect the foregoing,

                                              Decision will be entered

                                         under Rule 155.
