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TAX TRENDS

months, depending on the measure of gain exclusion under Sec. 121(a) many unfortunate and prolonged dif-
time used in the numerator). Thus, to was whether the couple met the use ficulties.” Thus, it also seemed clear
get any exclusion under this special requirements. The IRS pointed to the to the court that Catherine’s health
rule, the taxpayer must have resided in Weberts’ returns for the years 2010 caused the couple to need to move
the house for at least one day. through 2015, signed by the Weberts from the Mercer Island house and was
under penalty of perjury, as evidence of “a precipitating cause for the financial
Tax Court summary judgment their lack of personal use of the Mercer circumstances that contributed to that
rule Island house. Steven, in his response to need.” However, in his response to the
Under Tax Court Rules of Practice and the IRS’s motion for partial summary IRS’s motion for summary judgment,
Procedure Title XII, Rule 121, either judgment, did not offer specific factual Steven did not argue that any of these
party may make a motion for summary support by affidavits or declarations difficulties fall under the Regs. Sec.
judgment on some or all of the legal or as otherwise required by the Tax 1.121-3(b) safe harbors or that they
issues in controversy in a case. The Tax Court’s Rule 121 to support his claim were the “primary reason” for the sale
Court may grant summary judgment he used the Mercer Island house as of the Mercer Island house in 2015.
when there is no genuine dispute as to his principal residence at any point in The court, however, did not hold this
any material fact and a decision may the five years preceding its sale. He against Steven because he did not an-
be rendered as a matter of law. Rule only made the general allegation in his ticipate that the IRS would raise those
121(d) provides when a party properly response that he and his ex-wife used issues in its reply.
makes and supports a motion for sum- the Mercer Island house as a principal Nonetheless, the court stated that
mary judgment, the adverse party can- residence during the five years prior to if, as required by Rule 121, it drew all
not defeat the motion by making mere its eventual sale. reasonable inferences in Steven’s (the
allegations or denials of the moving The Tax Court determined that nonmoving party’s) favor, it appeared
party’s pleadings. Instead, the adverse “this broad generalization, made in that Catherine’s health problems may
party must by affidavits or declarations, contradiction of [Steven’s] own previ- have been the primary reason for the
or as otherwise provided in Rule 121, ous and specific accounting, cannot Weberts’ attempts to sell the house,
show specific facts establishing that create a genuine dispute of fact.” Hav- which began in 2009 and finally suc-
there is a genuine dispute for trial. ing failed to make any actual showing ceeded in 2015. Consequently, the
In deciding whether to grant sum- that he and his ex-wife together or court found that there was a genuine
mary judgment, the court is required separately used the Mercer Island dispute of fact as to whether health
to make factual inferences in the light house as their principal residence for reasons were the primary reason for the
most favorable to the nonmoving party. the required period under Sec. 121(a), sale, so it could not grant the IRS sum-
the court found that the couple did not mary judgment on that issue.
The Tax Court’s decision qualify for the exclusion of capital gain However, the Tax Court further
The Tax Court granted the IRS partial on the sale of the house. found that it was not clear that the
summary judgment, finding that there Effect of health conditions on facts about Catherine’s health and its
was no genuine dispute of material fact exclusions: The Tax Court found effect on the sale were actually material
regarding whether the Weberts met that Steven’s response to the IRS’s to the Weberts’ case. As the parties had
the use requirement with respect to motion for partial summary judgment not addressed this question, the court
the Mercer Island house, so they were invoked both the health-related did its own analysis and concluded
not entitled to an exclusion under Sec. exception to nonqualified use in Sec. that Catherine’s health problems
121(a). The court also found, however, 121(b)(5)(C)(ii)(III) and the separate did not seem to affect whether the
that there was a genuine dispute of fact exclusion allowed in Sec. 121(c) when Weberts were entitled to an exclusion
regarding whether the primary reason the sale of the taxpayer’s principal of their gain on the sale of the Mercer
for the Weberts’ sale of the Mercer residence is by reason of health. In its Island house.
Island house was Catherine’s health. reply to Steven’s response to its motion, While a temporary absence due to
Sec. 121(a) exclusion: Catherine the IRS claimed Steven did not “health conditions” may avoid being
undisputedly owned the Mercer show the requisite causal connection characterized as “nonqualified use” for
Island house continuously from between the health problems and the purposes of determining how much
2005 through 2015, so the Tax Court absence or the sale. gain is allocated to nonqualified use
determined that the only dispute in the The Tax Court stated that it was (and therefore cannot be excluded
Weberts’ case regarding the primary clear that the Weberts had “suffered from gross income), the court found

50 June 2022 The Tax Adviser