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to determine whether government the sale was due to Mrs. Webert’s health
Notice 2022-1 interests are prejudiced. Additionally, problems, therefore allowing a reduced
the IRS found the taxpayer to be act-
exclusion under Sec. 121(c)(2)(B).24
provided that ing with hindsight, as its only reason The IRS moved for summary judg-
lenders should for requesting late election relief was ment on the exclusion issue. The court
not file or furnish to affect the outcome of a subsequent ruled that the Weberts had not met
the principal residence use requirement
state tax proceeding.
payee statements Student loans: Notice 2022-1 during the required 2010 through 2015
for student loan provided that lenders should not period and granted summary judgment
on that point. However, it found that a
file or furnish payee statements for
debt discharged and student loan debt discharged and reduced exclusion was plausible, given
excluded from gross excluded from gross income for tax Mrs. Webert’s numerous health issues
years 2021 through 2025 under Sec.
precipitating the sale. Nonetheless, the
income for tax 108(f)(5). Accordingly, no Form court explained, as the reduced exclu-
years 2021 through 1099-C, Cancellation of Debt, should sion is also based on periods within five
2025 under be provided in these situations. years prior to the sale that the home is
used as a principal residence, the result
Sec. 108(f)(5). Sec. 121: Exclusion of gain of this reduced exclusion also appeared
from the sale of a principal to be zero in the Weberts’ case. Because
residence neither party had addressed whether, as
the court disagreed with the taxpay- In Webert, the Tax Court ruled on a matter of law, Mrs. Webert’s health
ers’ argument that they were not in whether a cancer patient’s home sale was a material fact, the court did not
possession of their company after its qualified for Sec. 121 gain exclusion.23 grant the IRS summary judgment on
repossession by their lender. The court In 2005, Mrs. Webert was diagnosed this point.
explained that taxpayers retain owner- with cancer, the same year she and her
ship of repossessed property until it is husband purchased the home in ques- Sec. 135: Income from U.S.
sold. Therefore, the company’s value tion. The Weberts alleged they resided savings bonds used to pay
would be considered in the taxpay- in the home from 2005 through 2009 higher education tuition and
ers’ insolvency determination before and experienced financial hardship fees
the sale. due to Mrs. Webert’s extensive medi- Section 3.18 of Rev. Proc. 2021-45
Late elections: The IRS denied cal treatments and related reduced set modified AGI phaseout ranges for
late election relief in Letter Ruling working capacity. In 2009, the We- the Sec. 135 exclusion for tax years
202205023 to exclude from income berts attempted to sell the home due beginning in 2022 at $128,650 to
the discharge of qualified real prop- to their medically related financial $158,650 for joint returns and $85,800
erty debt under Sec. 108(c)(3)(C). condition but were unsuccessful and to $100,800 for all others. The phaseout
Taxpayers may receive late election decided to rent it from 2009 through range is increased for 2023 to $137,800
relief under Regs. Sec. 301.9100-1(c), 2015 as a last resort. The home was to $167,800 for joint returns and
provided they meet certain require- ultimately sold in 2015, resulting in $91,850 to $106,850 for all others in
ments including acting reasonably, in a long-term capital gain, which they Rev. Proc. 2022-38.
good faith, and not with hindsight. excluded from gross income under
The IRS determined the request was Sec. 121. Sec. 165: Losses
unreasonable, having been made more Under examination, the IRS disal- Patent infringement: The Ninth
than six years after a timely election lowed the entire exclusion, arguing the Circuit affirmed the Tax Court’s denial
was required. Relief is often denied Weberts did not use the home as their of a net operating loss that a neurosur-
when the period of limitation is closed principal residence for at least two of geon claimed based on his allegation
for the initial election year and sub- the five years immediately preceding that a patent infringement reduced
sequent years, as no amended returns the sale — the requisite period under the value of his shares in a corporation
or IRS assessment would be allowed Sec. 121(a). The Weberts argued that holding the patent, which, he claimed,

23. Webert, T.C. Memo. 2022-32. 24. If the sale is “by reason of a change in place of employment, health, or ...
unforeseen circumstances.”

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