We have considered all the other arguments made by the parties, and to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit.

To reflect the foregoing,

Decision will be entered for respondent.

Reviewed by the Court.

COLVIN, COHEN, GALE, THORNTON, WHERRY, GUSTAFSON, PARIS, and MORRISON, JJ., agree with this majority opinion.

COHEN, J., concurring: I agree with the majority and write to explain my disagreement with the dissent.

The dissent argues that the holding of the majority is inconsistent with the remedial purpose of section 121. This Court's assigned task in the first instance, however, is to apply section 121 as written to the facts of this case. Section 121 requires that we examine the sale or exchange of property and provides that if the property sold was owned and used by the taxpayer as the taxpayer's principal residence for at least 2 of the 5 years preceding the sale or exchange, the taxpayer qualifies for the exclusion under section 121(a).

The focal point of the section 121 analysis is the property sold or exchanged. In this case the property sold consisted of land that petitioners had used for the required period (old land) and a new dwelling in which petitioners had never resided (new house). After concluding that the term “principal residence" means the dwelling (and associated land) in which a taxpayer resided as his or her primary home, the majority examined the facts to see whether what petitioners sold qualified as a principal residence within the meaning of section 121(a).

The fully stipulated facts reveal that the dwelling petitioners sold was not used as their principal residence for the required 2-year period. Petitioners demolished their former principal residence and built a new, much larger house that they never occupied. The facts are decisive and support the holding of the majority.

The dissent maintains that, because petitioners owned and used their former principal residence (old house, now demolished, and old land) for the required 2-year period, the prop

erty that they sold (new house and old land) qualifies for the exclusion. The dissent argues that this result is consistent with Congress' intention to liberalize the exclusion rules in 1997 when it amended section 121. However, the dissent ignores the fact that the term "principal residence" has been consistently used by Congress since 1951, and there is no evidence in the legislative history of the Taxpayer Relief Act of 1997 (TRA 1997), Pub. L. 105-34, sec. 312(a) and (b), 111 Stat. 836, 839, which amended section 121 and repealed section 1034, to indicate that Congress intended to change the meaning of the term "principal residence" sub silentio when it amended section 121. Although section 121 as amended by the TRA 1997 blended the approaches of former section 121 and former section 1034 to provide a simpler and more uniform treatment of gain generated by the sale of a principal residence, Congress did not change the definition of principal residence, a term it has used consistently since 1951 when section 112(n), the predecessor provision to former section 1034, was first enacted.

The majority's holding is consistent with caselaw that has developed under the predecessor provisions of section 121, most particularly former section 1034. The cases examine the dwelling to decide whether the property sold was used as the taxpayer's principal residence. If a taxpayer sold a dwelling that the taxpayer used as a principal residence, the taxpayer qualified for the deferral provided by former section 1034 if the other requirements of section 1034 (such as the timely purchase of a qualifying replacement property) were met. If a taxpayer sold some part of the underlying land but not the dwelling that the taxpayer used as a principal residence, the taxpayer could not defer the recognition of gain on the sale because the taxpayer did not sell his or her principal residence. See, e.g., Hughes v. Commissioner, 54 T.C. 1049 (1970), affd. per curiam 450 F.2d 980 (4th Cir. 1971); O'Barr v. Commissioner, 44 T.C. 501 (1965). If a taxpayer sold his or her principal residence with part but not all of the underlying land and then sold the rest of the land close to the time of the sale of the principal residence, at least one court has held that the sales must be integrated in deciding whether the gain on the sale of land could be deferred. Bogley v. Commissioner, 263 F.2d 746 (4th Cir. 1959), revg. 30 T.C. 452 (1958). Although the Court of Appeals ultimately decided

in Bogley that deferral was appropriate, the deferral was predicated on the fact that the taxpayer had also sold the principal residence in a related sale.

If petitioners had sold their old home instead of demolishing it, they would have qualified for the section 121 exclusion. That is not what they did. They demolished the old home, constructed a new and larger dwelling, and then sold the new dwelling without occupying it for the required 2-year period. The dissent objects to the result and argues that the majority's analysis in this case will distort the result in other cases in which the taxpayer should qualify for the section 121 exclusion. The response to this argument is straightforward-it is not this Court's job to anticipate and decide cases that are not yet before it. As the Supreme Court cautioned in Dewsnup v. Timm, 502 U.S. 410, 416-417 (1992): Hypothetical applications that come to mind and those advanced at oral argument illustrate the difficulty of interpreting the statute in a single opinion that would apply to all possible fact situations. We therefore focus upon the case before us and allow other facts to await their legal resolution on another day.

We have often stated that we "must decide the case in the light of what was done, not what might have been done." Paula Constr. Co. v. Commissioner, 58 T.C. 1055, 1060 (1972), affd. per curiam without published opinion 474 F.2d 1345 (5th Cir. 1973); see also Rogers v. Commissioner, 44 T.C. 126, 136 (1965) (“Our decision must be governed by what was actually done, rather than by what might have been done."), affd. per curiam 377 F.2d 534 (9th Cir. 1967). The majority properly limits its analysis to the facts of this case, which were fully stipulated, and to the issues raised by the parties. Petitioners did not argue for a partial exclusion of gain attributable to the sale of the land, nor did petitioners introduce any evidence that would have permitted the Court to allocate gain between the new house and the land. Petitioners argued only that they were entitled to the full exclusion under section 121. As the majority holds, the property sold, i.e., the dwelling and related land, must have actually been used as petitioners' principal residence for the required 2-year period. Because the new house petitioners sold was never used as their principal residence, the section 121 exclusion does not apply here. We may reach a

different conclusion in cases involving different facts if and when the opportunity arises, but we should not distort the result in this case by anticipating those cases.

GALE, THORNTON, MARVEL, WHERRY, GUSTAFSON, and PARIS, JJ., agree with this concurring opinion.

HALPERN, J., dissenting: There is adequate ground for the majority's conclusion that, to qualify for the section 121 exclusion, the taxpayer must sell not only the land on which her principal residence is located but also the principal residence itself. Nevertheless, I think that there is also adequate ground for concluding that petitioners' sale of the new house qualified for that exclusion.

Interpretation Contrary to the Remedial Intent of Section 121(a)

The gain exclusion rule of section 121(a) applies if three conditions are met: (1) There must be a sale or exchange (without distinction, sale); (2) the sale must be of "property *** owned and used by the taxpayer as the taxpayer's principal residence" (the property use condition), and (3) the property use condition must be satisfied for 2 out of the 5 years ending on the date of sale of the property (the temporal condition). The majority focuses on the second condition (the property use condition) and interprets the condition as being satisfied only if the property sold constitutes, at least in part, "a house or other structure used by the taxpayer as his principal place of abode." Majority op. p. 10. The majority does not rely on the text of the statute for that interpretation (which text it concludes is ambiguous) but looks to a report of the Committee on Ways and Means, House of Representatives (included as part of H. Rept. 105-148, at 285 (1997), 1997-4 C.B. (Vol. 1) 319, 607, a report of the Committee on the Budget, House of Representatives, accompanying H.R. 2014, 105th Cong., 1st Sess. (1997), which was enacted as the Taxpayer Relief Act of 1997, Pub. L. 105-34, 111 Stat. 788), explaining the committee's reasons for recommending an amendment to section 121. The committee's reasons are principally the difficulties a homeowner faces in keeping track of his basis in his home. The committee report lan

guage the majority quotes neither addresses the language of the proposed amendment nor purports to exhaust the situations giving rise to the need for the amendment. It provides insufficient grounds to conclude "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)." Majority op. p. 10 (emphasis added).

While the majority is correct that the Supreme Court has said that exclusions from income are to be narrowly construed, Commissioner v. Schleier, 515 U.S. 323, 328 (1995) (more precisely, the Court said: "the default rule of statutory interpretation [is] that exclusions from income must be narrowly construed'" (quoting United States v. Burke, 504 U.S. 229, 248 (1992) (Souter, J., concurring in judgment))), the Supreme Court has also said that, if the meaning of a tax provision liberalizing the law from motives of public policy is doubtful, then it should not be narrowly construed, Helvering v. Bliss, 293 U.S. 144, 150–151 (1934).

With that latter rule of construction in mind, consider a taxpayer whose longtime home is demolished by a natural disaster (a hurricane). The taxpayer lacks insurance. Nevertheless, she rebuilds on the same land (perhaps a bit further from the ocean) and lives in the rebuilt house for 18 months, and then she sells the house and land at a gain. Although the taxpayer satisfies the property use condition, I assume that, nevertheless, under the majority's analysis, she gets no exclusion because she fails the temporal condition; i.e., she has not lived in the rebuilt house for 2 or more of the last 5 years.1 I assume further that, if her house had been only damaged (and not demolished), and she repaired it, she would get an exclusion. That seems like an untenable distinction to me. 2

1 Under the facts assumed, the destruction of the original house does not result in the conversion of the house into similar property or into money. See sec. 1033(a). Therefore, the rebuilt house is not property acquired after an involuntary conversion, and there would be no tacking of the use and period of occupancy of the original house onto the rebuilt house for purposes of sec. 121. See sec. 121(d)(5)(C).

2 It is no answer to that criticism to say, as Judge Cohen does, that it is not the Court's job to anticipate and decide cases that are not yet before it. We are a national court that treats its own cases as precedent until we overrule ourselves by action of the Court Conference. This case (and my arguments) have been before the Court Conference. We should recognize, as no doubt the Commissioner and taxpayers will, the weight that the analysis in this case will carry in similar situations under principles of stare decisis.