Your client, Howard Wilson, sold his principle residence in Cleveland in December 2012 and correctly excluded his entire $148,000 gain on the sale from gross income (sale of principle residence). He purchased and moved into a new home in Chicago. Shortly thereafter, Howards 20-year old son moved in with him. The son was on probation from a prison sentence for drug dealing and assault with a deadly weapon. Howards neighbors learned of his sons criminal record and began organizing protests against the son living there. Howard received several verbal and written threats and his house was spray painted with graffiti. The atmosphere was so bad Howard sold his house and relocated to Denver in November 2013. Howard had a $40,000 gain on the sale of the Chicago house but did not report it on his 2013 tax return. He believed he was entitled to exclude the gain as gain from the sale of his principle residence. Howard just received a letter from the IRS stating that he owes taxes, interest and penalties related to the $40,000 gain. Specifically, the IRS says he was not entitled to exclude the $40,000 gain, as he hadnt met the two-year residency requirement. Required: Write a 2 - 3 page memo to me, as your boss, explaining whether there is any way that Howards position will prevail (he will not have to pay taxes, penalties and interest on the $40,000). Include a thorough discussion of all relevant research (code, regulations, court cases, etc.), and your best estimate of the likely outcome (will Howard have to pay the taxes, penalties and interest). Cite all relevant authority