Gene Utterback, EA, RFC, ABA wrote:
- quote -

Gene,
The employment/hardship example is one of the safe harbors under reg
1.121-3(e). The reg says that you don't qualify for the exclusion if the
sale was motivated by a change in preference - that's not a qualifying
"unforeseen circumstance":

"(e) Sale or exchange by reason of unforeseen circumstances —(1) In
general. A sale or exchange is by reason of unforeseen circumstances if
the primary reason for the sale or exchange is the occurrence of an
event that the taxpayer could not reasonably have anticipated before
purchasing and occupying the residence. A sale or exchange by reason of
unforeseen circumstances (other than a sale or exchange deemed to be by
reason of unforeseen circumstances under paragraph (e)(2) or (3) of this
section) does not qualify for the reduced maximum exclusion if the
primary reason for the sale or exchange is a preference for a different
residence or an improvement in financial circumstances."

The last sentence seems to doom Skip's example. The TP voluntarily
retired, had enough money to stay there, and simply chose to move
elsewhere to be closer to family.

And it doesn't meet the relevant safe harbor under section (e), which
requires both change of employment and financial hardship:

"(2) SPECIFIC EVENT SAFE HARBORS
(C) A change in employment or self-employment status that results in the
taxpayer's inability to pay housing costs and reasonable basic living
expenses for the taxpayer's household (including amounts for food,
clothing, medical expenses, taxes, transportation, court-ordered
payments, and expenses reasonably necessary to the production of income,
but not for the maintenance of an affluent or luxurious standard of living)"

Of course "not meeting the safe harbor" and "not qualifying" are
different things and it's a matter of opinion. If the $ is substantial
the client should get a paid opinion on it from a CPA or tax attorney.
It may be worth reading the entire reg, and the notes on their adoption
(on irs.gov), for hints at how this might go.

-Tad

PS this is not legal advice, don't rely on anything you read on the
internet, see your lawyer, etc etc

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:gdSzg.423$gY6.18[at]newssvr11.news.prodigy.com...
- quote -

Where in the regs have you seen the requirement for a change in employment
and financial hardship as being part of unforeseen circumstances?

Keep in mind that there is a difference between unforeseen and
unforeseeable - the latter has a higher standard, the former is more
flexible. In this particular case I'd have no problem with them simply
changing their minds about where they want to live in retirement - AFTER
retiring they decided they wanted to be closer to family, perhaps just to
have a closer support network, or for no particular reason at all. IMNHO
this could qualify as unforeseen - they didn't foresee that they would want
to move after they retired.

I'd explain the regs - and the lack of specifics - and let the client
decide; with the disclosure that the IRS may or may not agree with anything
that isn't specifically spelled out in the code or supporting regs, rulings,
and decisions. Again, IMHO I think this qualifies.

To the OP - in another post you asked which category the couple hand their
hat on - this is a facts and circumstances issue. I'd (we'd) have to have
access to ALL the relevant issues, review all the documents, have a
discussion with the client AND get paid for the consultation (or the
return). In short, we can guide you and give you our opinions about what
should work, but in the end it will be up to you to use your professional
judgment to help the client make a decision.

If the gain is substantial and the possible exclusion is substantial and the
client is comfortable with an aggressive position - I'd have no problem
using Unforeseen Circumstances to claim the partial exclusion. However, if
using the exclusion is going to save the taxpayers only a few hundred
dollars, and with all the available information in my mind, I might make a
different recommendation.

Good luck,
Gene E. Utterback, EA, RFC, ABA



--
Posted via a free Usenet account from http://www.teranews.com

HW "Skip" Weldon wrote:
- quote -


Skip,
The IRS regulation on this is 1.121-3, especialy part (e). The examples
in the reg lean against this kind of scenario (googling should turn up a
copy, if not I can post it). The principal reason for making the move
has to fit one of the partial-exclusion categories: change in place of
employment, health issues, or unforeseen circumstances. The reg
describes each of these at length, with examples. When it's simply a
preference ("retire & decide to be closer to family") the gain exclusion
doesn't apply.

The closest fit would be "unforeseen circumstances" but for that, you
need both a change in employment & financial hardship - you can't afford
to stay in the home and keep food on the table. Because there's no
hardship you don't even need to address whether the voluntary retirement
qualifies as a change of employment under the reg.

Maybe people are being more aggressive with this - did you try
misc.taxes.moderated?

-Tad

On Tue, 1 Aug 2006 17:50:17 -0500, Tad Borek <borekfm[at]pacbell.netwrote:


- quote -

Relatively upscale couple. Voluntary retirement. They retired and
decided to be nearer family. My guess is that new house had higher
price, but not sure.

If it were forced or because of finances I would be likely to
encourage them to prorate gain.

-HW "Skip" Weldon
Columbia, SC

HW "Skip" Weldon wrote:
- quote -


Skip,
What were the circumstances of the retirement? Forced vs. voluntary.

After retiring could they afford to keep living in the house? How did
their new residence compare to the old one (value/monthly cost)?

-Tad

HW "Skip" Weldon wrote:

- quote -

I am reading "a change in employment" to be the equal of "change in
employment status".
The only example pub 523 offers for retirement is a couple who lived in
the house a long time. You'd think this would come up more often, and
they'd be interested in stating this explicitly.
JOE

On Tue, 1 Aug 2006 13:43:43 -0500, joetaxpayer
<joetaxpayer[at]nospam.com> wrote:


- quote -

Thanks. I had seen the above and was not comfortable fitting normal
retirement into any of the above categories. Of course I have not
read all of the regs. Which category are you suggesting the couple
hang their hat on?


-HW "Skip" Weldon
Columbia, SC

HW "Skip" Weldon wrote:
- quote -

Skip;
from http://www.irs.gov/newsroom/article/...105042,00.html

A sale will be considered as occurring primarily because of “unforeseen
circumstances” if any of these events occur during the taxpayer’s period
of use and ownership of the residence:

* death,
* divorce or legal separation,
* becoming eligible for unemployment compensation,
* a change in employment that leaves the taxpayer unable to pay the
mortgage or reasonable basic living expenses,
* multiple births resulting from the same pregnancy,
* damage to the residence resulting from a natural or man-made
disaster, or an act of war or terrorism, and
* condemnation, seizure or other involuntary conversion of the
property.


I believe your people can prorate the 2 years for their exemption ammount.
JOE

Yet another example of something about which I have no clue:

Couple sells house (principal residence) before 2 years because of
retirement. They move to another state.

Would this qualify as "cessation of employment" for purposes of
avoiding capital gains tax and qualifying for residential exclusion?

-HW "Skip" Weldon
Columbia, SC