IRS publications are not legal authority. E.g.,
Zimmerman v. Commissioner, 71 TC 367, 371 (1978), aff'd without opinion 614 F 2d 1294 (2nd Cir 1979). That said, I looked at the potentially relevant sections of that publication and I did not locate anything within that supports Wile E. Coyote's assertion regarding the principal residence exclusion.
I also took a look into the history of the rule that the principal residence exclusion does not apply to the sale of a remainder interest to certain related parties, as mentioned in
my post above. The remainder interest exception was enacted by the Taxpayer Relief Act of 1997, PL 105–34, § 312(a),
111 Stat 788, 838-84 (Aug 5, 1997). Neither the House report (HR Report 105-148 (Jun 24, 1997)) nor the Conference Report (HR Report 105-220 (Jul 30, 1997)) discuss this exception, but I noticed something interesting: at the time of the House report, the exception made the exclusion inapplicable to sales of remainder interests
and life estates to certain related parties. By the time of the Conference Report, the exception applied only to remainder interests. This appears to suggest that Congress specifically crafted a limited exception, intended to apply only to certain narrowly-described interests, and not to all interests in real estate.
Certainly Congress could have introduced a more broad exception since 1997, but I found no evidence of that. If they had done that, it would have been prudent to remove the more specific exception to avoid ambiguity, though of course Congress is
not always maximally artful in its drafting of legislation.
Note: There might be other flaws with dragoncar's proposed plans as described in the original post. I comment here only on the specific claim made by Wile E. Coyote.