No, not Sir Paul McCartney’s injunction to Jojo (whoever he was) on the Let it Be album that signaled the break-up of the Fab Four, but rather Judge Nega knocking out Marvin E. DeBough’s Section 121 exclusion when Marv took back his former principal residence from his welshing installment-plan contract vendee.

Read all about it in 142 T. C. 17, filed 5/19/14.

Marv and spouse bought the homestead in 1966, and Marv and spouse unloaded forty years later for a huge capital gain. They took the Section 121 $500K exclusion on the Year One cash, and did a Section 453 installment sale for the rest.

Spouse deceased in the interim, and Marv got a stepped-up basis thereby. But then the purchasers defaulted on the contract for deed (what we call a land sale contract), and Marv took back the property.

Marv reports all his gain on the sale over the course of years that the purchaser paid up, but not the $500K exclusion, claiming Section 1038 (reacquisition of property sold on installment) doesn’t trump Section 121. And Marv didn’t resell within a year after reacquisition, so no triggering of Section 1038(e), which would have given Marv an explicit bye.

Marv argues that Congress should have expressly nullified Section 121 if they intended that any repossession of a principal residence sold on the installment method would require recognizing the $500K excluded, if the property weren’t resold within one year.

But, say IRS and Judge Nega, Section 1038 expressly deals with reacquired installment sale property, and Section 1038(e) is the only safe harbor.

The aim is to put the selling principal resident back to where he once belonged, as Sir Paul so eloquently put it. And that means paying tax on whatever he didn’t pay tax before, unless he slides under the one-year tag.

Judge Nega: “Sellers fulfilling the requirements of section 1038(e) are essentially allowed to collapse the initial sale and subsequent resale into one transaction. The legislative history behind the section 1038(e) exception is unclear as to why Congress limited the exception to sellers who resell property within one year of reacquisition. Whatever the reasoning behind the exception, the relief offered by section 1038(e) is clearly limited to those sellers who resell their principal residences within one year of reacquisition. Since petitioner did not resell the property within one year of reacquisition, he is ineligible for the section 1038(e) exception and must recognize gain in accordance with the general rules of section 1038.” 142 T. C. 17, at p. 15.

Judge Nega sees nothing unfair in taxing Marv on his $500K exclusion, as he would be better off after the reacquisition, and the aim is to put him back where he was before the sale was made.

Get back, Marv.