not certain of how much housing appreciation they can expect. Thus, even though most homeowners never pay any income tax on the capital gain on their principal residences, as a result of the rollover provisions and the $125,000 one-time exclusion, detailed records of transactions and expenditures on home improvements must be kept, in most cases, for many decades. To claim the exclusion, many taxpayers must determine the basis of each home they have owned, and appropriately adjust the basis of their current home to reflect any untaxed gains from previous housing transactions. This determination may involve augmenting the original cost basis of each home by expenditures on improvements. In addition to the recordkeeping burden this creates, taxpayers face the difficult task of drawing a distinction between improvements that add to basis, and repairs that do not. The failure to account accurately for all improvements leads to errors in the calculation of capital gains, and hence to an under- or overpayment of the capital gains on principal residences. By excluding from taxation capital gains on principal residences below a relatively high threshold, few taxpayers would have to refer to records in determining income tax consequences of transactions related to their house.

Present law also may discourage some older taxpayers from selling their homes. Taxpayers who would realize a capital gain in excess of $125,000 if they sold their home and taxpayers who have already used the exclusion may choose to stay in their homes even though the home no longer suits their needs. ***

[H. Rept. 105-148, at 347 (1997), 1997-4 C.B. (Vol. 1) 319, 669; emphasis added.]

The legislative history demonstrates that Congress intended the term "principal residence" to mean the primary dwelling or house that a taxpayer occupied as his principal residence. Nothing in the legislative history indicates that Congress intended section 121 to exclude gain on the sale of property that does not include a house or other structure used by the taxpayer as his principal place of abode. Although a principal residence may include land surrounding the dwelling, the legislative history supports a conclusion that Congress intended the section 121 exclusion to apply only if the dwelling the taxpayer sells was actually used as his principal residence for the period required by section 121(a).

The conclusion that we reach from an examination of the legislative history surrounding the enactment of section 121 is bolstered by and is consistent with regulations promulgated under the predecessor provisions of section 121. Section 1.121-3(a), Income Tax Regs., under former section 121, provided that the term "principal residence" has the same

meaning as in section 1034 and the regulations thereunder. Section 1.1034–1(c)(3)(i), Income Tax Regs., under former section 1034 (section 1034 regulations), provided that whether property was used by the taxpayer as his principal residence depended on all the facts and circumstances in each case, including the good faith of the taxpayer. The section 1034 regulations further provided that property used by the taxpayer as his principal residence may include a houseboat, a house trailer, or stock held by a tenant-stockholder in a cooperative housing corporation, if the dwelling which the taxpayer is entitled to occupy as such stockholder is used by him as his principal residence. The focal point of the section 1034 regulations was the dwelling unit a taxpayer uses as his principal residence. The section 1034 1034 regulations reinforce our conclusion that to obtain the benefits of former section 1034, a taxpayer who sells a dwelling must have actually used it as his principal residence.

Our conclusion regarding the meaning that Congress attaches to the terms "property" and "principal residence" in section 121(a) is also consistent with caselaw interpreting former section 1034, as in effect before its repeal. This Court held that in order to qualify under former section 1034, a taxpayer had to sell a dwelling that he used as his principal residence. 16 In Hughes v. Commissioner, 54 T.C. 1049, 1050

16 We have found only one case where the taxpayers were permitted to exclude gain on a sale of land that did not occur simultaneously with the sale of the taxpayers' principal residence. See Bogley v. Commissioner, 263 F.2d 746 (4th Cir. 1959), revg. 30 T.C. 452 (1958). In Bogley v. Commissioner, supra at 747, the taxpayers attempted to sell the entire 13-acre parcel on which their principal residence was situated, but they were able to sell only the dwelling and 3 acres surrounding the dwelling. Less than 1 year later, the taxpayers sold the remaining 10 acres. Id. The Court of Appeals for the Fourth Circuit concluded that the character of the 10 acres never changed and held that the sale of the 10 acres qualified as a sale of the taxpayers' principal residence. Id. at 748.

Courts have distinguished Bogley on the grounds that in Bogley the sale of the 10 acres was not a sale of land alone as the dwelling was also sold albeit in a transaction separate from the sale of the 10 acres. See Hughes v. Commissioner, 54 T.C. 1049, 1055 (1970), affd. per curiam 450 F.2d 980 (4th Cir. 1971); O'Barr v. Commissioner, 44 T.C. 501, 503 (1965). This Court has stated that Bogley does not support the position that a sale of land alone without a sale of the dwelling qualifies for the sec. 1034 exclusion. See Hughes v. Commissioner, supra at 1054–1056. Bogley is distinguishable from this case because petitioners did not sell the original house and the land in separate but related transactions as the taxpayers did in Bogley.

Regulations under amended sec. 121, as currently in effect, provide that if a taxpayer meets certain requirements, gain from the sale of land alone may qualify for the sec. 121 exclusion. Sec. 1.121-1(b)(3), Income Tax Regs. However, to qualify under this provision of the regulations, the taxpayer must still sell a “dwelling unit" that meets the requirements under sec. 121 within 2 years before or after the sale of the land. Sec. 1.121-1(b)(3)(i)(C), Income Tax Regs. The regulations under amended sec. 121 are effective for sales on or after Dec. 24, 2002. Sec. 1.121-1(f), Income Tax Regs.

(1970), affd. per curiam 450 F.2d 980 (4th Cir. 1971), the taxpayers agreed to exchange premises A, on which the dwelling that served as their principal residence was situated, for cash and the right to occupy premises B as their new principal residence. Before the exchange, the taxpayers moved the dwelling from premises A to premises C and began using the dwelling on premises C as income-producing property. Id. at 1053. Relying on former section 1034, the taxpayers excluded gain realized on the exchange of premises A (without the dwelling) for premises B and cash. Id. at 1053. They argued that premises A without the dwelling was as much a part of their principal residence as the dwelling and that the land should be treated as their old residence for purposes of section 1034. Id. at 1054. This Court disagreed with the taxpayers and held that they were not entitled to the exclusion because the dwelling that was used as their principal residence was never sold or disposed of as required by former section 1034. Id.

In O'Barr v. Commissioner, 44 T.C. 501 (1965), the taxpayers sold a portion of a tract of land on which their principal residence was situated. However, the portion of land sold did not include the residence. Id. Relying on former section 1034, the taxpayers excluded gain from the sale of the land. Id. at 502. The taxpayers argued that the controlling fact was how the land had been used before the sale and not whether the land included a dwelling when it was sold. According to the taxpayers, the land that was sold had been part of the property used as their principal residence and that use entitled them to claim the benefit of former section 1034. Id. In its analysis of former section 1034, this Court stated that "The only logical interpretation of section 1034 is that it will only apply in situations where a taxpayer has disposed of his old dwelling." Id. at 503. Because the taxpayers did not dispose of their dwelling, the Court concluded that former section 1034 was inapplicable. Id. Other cases have followed Hughes and O'Barr. See, e.g., Boesel v. Commissioner, 65 T.C. 378, 390 (1975) (essential element of a residence is the dwelling, not the land on which it is situated); Hale v. Commissioner, T.C. Memo. 1982-527 ("The sale of a taxpayer's residence requires the sale of a structure which is used as a principal place of abode, and we have held that the

sale of land without the structure does not constitute a sale of a residence within the meaning of section 1034.").

Former section 1034 required that a taxpayer sell "property *** used by the taxpayer as his principal residence" in order to qualify for deferral. In 1997, when Congress amended section 121 and repealed section 1034, TRA 1997 sec. 312(a) and (b), Congress continued to use the wording of former section 1034 to describe the type of property that qualified for exclusion treatment under section 121(a) if sold-"property *** used by the taxpayer as the taxpayer's principal residence". Congress did not give any indication in the legislative history of section 121 that it intended that wording to have a meaning for the purpose of section 121 different from the meaning it had been accorded under former section 1034; nor did Congress state that it disagreed with the interpretation of that wording in cases that had interpreted former section 1034. We infer from the consistent use of the phrase "property * * * used by the taxpayer as his principal residence" in former section 1034 and in section 121 as amended by Congress in 1997 that Congress intended the comparable wording in the two sections to be interpreted comparably.

Although we recognize that petitioners would have satisfied the requirements under section 121 had they sold or exchanged the original house instead of tearing it down, we must apply the statute as written by Congress. Rules of statutory construction require that we narrowly construe exclusions from income. Commissioner v. Schleier, 515 U.S. at 328. Under section 121(a) and its legislative history, we cannot conclude on the facts of this case that petitioners sold their principal residence. 17 Accordingly, we hold that peti

17 Sec. 121(c) provides that a taxpayer who fails to meet the ownership or use requirements under sec. 121(a) because of “a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances" is entitled to a prorated exclusion under sec. 121(a). The prorated exclusion is based on the period of a taxpayer's ownership and use of the principal residence. See sec. 121(c)(1). Because petitioners never used the new house as their principal residence, they would not qualify for proration in any event. Even if they did, however, petitioners did not introduce any credible evidence to support their claim to a prorated exclusion. Petitioners argue that the unsustainable debt they incurred in constructing the new house is an unforeseen circumstance that justifies an exclusion under sec. 121(a). However, petitioners did not introduce any credible evidence regarding the debt they allegedly incurred or that the debt was "unsustainable”, or that unsustainable debt qualified as "unforeseen circumstances" within the meaning of sec. 121(c).

tioners may not exclude from income under section 121(a) the gain realized on the sale of the Summit Road property. 18 III. Addition to Tax Under Section 6651(a)(1)

Section 6651(a)(1) authorizes the imposition of an addition to tax for failure to file a timely return, unless it is shown that such a failure is due to reasonable cause and not due to willful neglect. United States v. Boyle, 469 U.S. 241, 245 (1985); United States v. Nordbrock, 38 F.3d 440, 444 (9th Cir. 1994); Harris v. Commissioner, T.C. Memo. 1998-332. A failure to file a timely Federal income tax return is due to reasonable cause if the taxpayer exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time. See sec. 301.6651-1(c)(1), Proced. & Admin. Regs. Willful neglect means a conscious, intentional failure to file or reckless indifference toward filing. See United States v. Boyle, supra at 245.

If a taxpayer assigns error to the Commissioner's determination that the taxpayer is liable for the addition to tax, the Commissioner has the burden, under section 7491(c), of producing evidence to show that the section 6651(a) addition to tax applies. See Swain v. Commissioner, 118 T.C. 358, 364-365 (2002); Higbee v. Commissioner, 116 T.C. 438, 446 (2001). To meet his burden of production, the Commissioner must come forward with sufficient evidence to show that it is appropriate to impose the relevant penalty or addition to tax. Higbee v. Commissioner, supra at 446. However, the Commissioner is not required to introduce evidence regarding reasonable cause, substantial authority, or similar defenses. Id.

Petitioners admit that they did not file a timely Federal income tax return for 2000. This is sufficient to satisfy respondent's burden of producing evidence that the section 6651(a)(1) addition to tax applies. Petitioners did not introduce any evidence to prove that they had reasonable cause for their failure to file their 2000 return timely. Consequently, we sustain respondent's determination.

18 Petitioners do not contend or provide any authority for the proposition that we should allocate the gain between gain on the land and gain on the residence, or offer any evidence to support such an allocation.