In this case, the petitioner sold his home and 80-acres of land on the installment basis for a gain of $657,796. The petitioner calculated the gain by excluding $500,000 of gain attributable to the home sale exclusion of I.R.C. Sec. 121. The buyers defaulted and the petitioner reacquired the property in full satisfaction of the debt. The IRS claimed the petitioner had to recognize gain upon repossession to the extent of money and other property received before repossession, which would, in essence, recapture the Sec. 121 exclusion previously claimed. The court agreed with IRS that the general rules of I.R.C. Sec. 1038 applied and noted that the petitioner was actually in a better position than before the sale because he had received some payments for the sale before the buyer's default and recouped the property. The case is on appeal to the Eighth Circuit Court of Appeals. Debough v. Comr., 142 T.C. No. 17 (2014).
- Ag Docket