The final rules focus on the part of the Internal Revenue Code that allows a taxpayer who fails to meet the above condition to still have an exclusion in a reduced amount. There are three grounds for claiming a reduced exclusion: change in employment, health, and unforeseen circumstances. For each of these grounds, the regulations provide a general definition and one or more "safe harbors"--specific reasons for the sale of the residence. If the safe harbor for a particular ground applies, a sale (or exchange) is deemed to be "by reason of" that ground. If no safe harbor applies, the taxpayer still can claim one of the grounds on the basis of all of the surrounding facts and circumstances.

For example, the safe harbor for claiming a reduced exclusion because of a change in employment applies when the new place of employment is at least 50 miles farther from the residence that was sold than was the former place of employment. As for health, the safe harbor that smooths the way for the reduced exclusion is a physician's recommendation of a change of residence for reasons of health. A sale or exchange of a residence due to unforeseen circumstances refers to the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence. Simply wanting to move to a preferred home or moving due to improved financial circumstances does not qualify. The specific events that make up the safe harbor for this ground include, among other things, such circumstances as death, divorce, natural or man-made disasters affecting the house, and even multiple births from a single pregnancy.

Town Cannot Zone Out Synagogues
Two small Jewish congregations leased second-floor space in a bank building in the business district of a small town. Under the town's zoning ordinance, churches and synagogues were allowed in only one of the town's eight zoning districts. Unfortunately for the congregations, their location was not in that district. When the town tried to direct the congregations out of the business district and into the one district where synagogues were allowed, the worshipers objected. They maintained that there was no suitable location in that district and that such a move was not practical or convenient for the many members who had to walk to services.

When the dispute eventually reached federal court, the congregations ultimately prevailed on a claim brought under the federal Religious Land Use and Institutionalized Persons Act (RLUIPA). Essentially, that law prohibits a governmental entity from implementing a land-use regulation in a manner that treats a religious assembly or institution less favorably than a nonreligious assembly or institution. The town's ordinance ran afoul of the RLUIPA because it permitted private clubs, social clubs, and lodges in the same business district in which it banned churches and synagogues.

The town argued that it was reasonable to keep houses of worship out of the business district because they eroded the tax base and reduced the vitality of the retail areas. The court agreed with the congregations' response that the places of worship were no more of a drag on business than the clubs and lodges that were allowed in the business district. In fact, there was evidence that members of the congregations regularly stimulated the local economy as they patronized shops on the way to and from the synagogues. There was no comparable stimulus from members of private clubs, who gathered less often and sometimes during nonbusiness hours. All that was left to explain the town's treatment of the congregations, as compared to the town's treatment of the congregations' secular counterparts, was the religious nature of their activities. It was just such discrimination that Congress meant to prohibit when it enacted the RLUIPA.

Handicapped-Accessible Apartments
In its role as enforcer of the Fair Housing Act (FHA), the U.S. Department of Justice sued the developer of, and architects for, two apartment complexes. The government won an injunction against any further construction and occupancy of the apartment buildings.

Among the detailed requirements in the FHA for accessibility for the disabled is a requirement that "common areas" for multifamily dwellings be readily accessible to and usable by handicapped persons. In the case under consideration, the focus was on the landing area shared by two ground-floor apartments in each complex. The front door for each of the apartments was located there, but it was not handicapped accessible because the landing could only be reached by descending stairs. The apartments also had a rear entrance from the apartments' patios that was handicapped accessible, but it was located farther from the parking lot.

The defendants argued that the FHA only requires that there be at least one accessible route into and out of each apartment, and that the patio entrance for each ground-floor unit met that requirement. The federal court disagreed. All it took to make the landing area a "common area" was that it was shared by at least two units, and that was so in the case before the court. It was beside the point that there was a separate, back-door access for the disabled. The FHA clearly mandates that the common area, which in this case was at the front-door entrance to the apartments, be handicapped accessible.

The court indicated that the public's strong interest in eradicating housing discrimination against the disabled outweighed the developer's plea that the injunction translated into substantial financial losses each month. The government also pointed out that the developer chose to proceed at its own peril with construction and leasing after being warned that the design violated the FHA. This case offers an object lesson in the importance of being in compliance with FHA requirements before breaking ground on a construction project.