I stand corrected after reading the code, regs, and legislative history again.  I agree with Bill that the taxpayer should be entitled to a partial exclusion pursuant to §121(c) and that §§1.121-3(c) is the subsection that governs the application.

When §§1.121-3T was published, it was stipulated in paragraph (b) that reduced exclusion would apply "only if the primary reason for the sale or exchange is... a change in place of employment..., health..., or unforeseen circumstances."  The IRS was specific, with the promulgation of the final regulations, about their intent to remove the "primary reason" test where one of the safe harbors applies and that such sale or exchange will "be deemed to be by reason of a change in place of employment, health, or unforeseen circumstances."  This means the facts and circumstance factors listed under §1.121-3(b) will not be relevant so long as the safe harbor rules are met.

Since the taxpayer in this case sold the home by reason of a change in place of employment should qualify for the safe harbor under §§1.121-3(c)(2), when read in conjunction with subparagraphs (1) and (3), the sale would be deemed to be by reason of a change in place of employment and the taxpayer should qualify for the reduced exclusion, taking into account the following periods (give or take a month since it is not clear whether the cutoff was end of Aug or sometime in Sep)-

• Jan 2001 to Jul 2005: Ownership & Use
• Aug 2005 to Sep 2018: PCS
• Oct 2008 to Sep 2018: Suspension period
• Oct 2003 to Sep 2008: 5-year Ownership Period
• Oct 2003 to Jul 2005: 22 Months Period of Use

In addition, we will need to consider §121(b)(5) for potential exclusion of gain for nonqualified use.  By means of §121(b)(5)(c)(i) and (ii)(II), nevertheless, it would appear that there should not be any period of nonqualified use.

• Period of Ownership: Jan 2001 to Sep 2018: 213 Months
• Period of Nonqualified Use: Aug 2005 to Sep 2018
• Pre-2009 Period: Aug 2005 to Dec 2008
• Exception: Jan 2009 to Sep 2018: 117 Months

Note, however, any gain realized would still be subject to unrecaptured §1250.