Specific Comments on the Proposed Section 121 Regulations
(Reg-105235-99; October 10, 2000)
May 1, 2001

VI.  Old Section 1034 and Basis

Background
Many individuals will continue to own and use a residence with a basis adjusted under former Section 1034. Section 1016(a)(7) was modified by the Taxpayer Relief Act of 1997 to provide that the basis still is determined under former Section 1034(e). However, Section 1016 is not cross-referenced in Section 121 and some people may thus not be aware of this basis provision.

Comments
Recommendation: The Section 121 regulations should include a reference to Section 1016(a)(7) as relating to the basis of a residence for which gain was previously deferred under former Section 1034. Also, because Section 1034(e) is not readily available for reference due to repeal of Section 1034, its text should be provided in the Section 121 regulations.

In addition to making these clarifications, we also encourage the Treasury Department to recommend technical corrections legislation to add as subsection 121(h) a cross-reference to Section 1016(a)(7) and to amend Section 1016(a)(7) to set forth the text of Section 1034(e) as in existence prior to the Taxpayer Relief Act of 1997, instead of merely referring to it.