DiPlacido v. Commissioner
| Decision Date | 19 April 1993 |
| Docket Number | Docket No. 2568-91. |
| Citation | 65 T.C.M. 2438 |
| Parties | Pat E. DiPlacido v. Commissioner. |
| Court | U.S. Tax Court |
Pat E. DiPlacido, pro se. Michael A. Urbanos, for the respondent.
Memorandum Findings of Fact and Opinion
By a statutory notice of deficiency, respondent determined a $10,081 deficiency in petitioner's 1987 Federal income tax and additions to tax of $1,636.75 under section 6651(a),1 $504.05 under section 6653(a)(1)(A), and under section 6653(a)(1)(B), 50 percent of the interest payable under section 6601 with respect to the portion of the underpayment attributable to negligence. The issues we consider are: (1) Whether under the limitations of section 6511(b)(2), made applicable by section 6512(b)(3)(B), petitioner's refund claim is timely; (2) whether petitioner has established the amount of the casualty loss to his residence; and (3) whether petitioner is liable for additions to tax under sections 6651(a), 6653(a)(1)(A) and (B).
The parties entered into a stipulation of facts, along with exhibits which are incorporated herein by this reference. Petitioner resided in Bloomington, Minnesota, at the time the petition was filed in this case.
Respondent, by a notice of deficiency mailed November 16, 1990, determined a deficiency in income tax and additions to tax for petitioner's 1987 taxable year. Respondent used the standard deduction in the computation of the income tax deficiency. Petitioner mailed his 1987 Federal income tax return by certified mail on April 15, 1991. Respondent's Kansas City Service Center received the 1987 return on April 17, 1991. The 1987 return claimed employee business expenses and itemized deductions, including a $49,000 casualty loss regarding petitioner's residence. During 1987, petitioner's employer withheld $3,534.86, as income tax withholding, from petitioner's wages. The parties have reached agreement with respect to all claimed deductions, except the $49,000 casualty loss claimed in connection with petitioner's residence.
Petitioner purchased his residence around 1977 for about $85,000. Shortly after purchase, he made about $2,000 in improvements to the residence. During the summer of 1987, petitioner's residence was damaged by a heavy rain and wind storm. The flooding caused expansion and contraction of the residence. The damage was structural in nature and resulted in structural weaknesses, including cracking and subsequent foundation leakage. The walls, foundation, landscaping, and garage were damaged. The foundation or footing of the residence became "unstable and unsettled". As a result, the house settled and sank about 3 to 5 inches. Due to the settlement and cracking in the foundation, water regularly seeped into the basement causing accumulation of 3 to 5 feet of standing water.
Petitioner's area was designated a disaster area by the President of the United States which enabled him to receive certain relief. In connection with the storm damage, petitioner was granted a $15,800 loan by the U.S. Small Business Administration. Petitioner qualified for a loan of up to $50,000, but existing encumbrances on the realty caused limitations on the loan amount. About 2 years prior to the storm damage, when petitioner had considered selling his residence, it was valued at $142,000. Petitioner did not obtain estimates immediately before or after the claimed casualty.
Subsequent to the damage, petitioner obtained estimates ranging from $49,000 to $59,000 to repair his residence. Petitioner did not provide specific information concerning the estimates. During 1987, petitioner paid $7,565 for repairs to his residence. For purposes of reporting the 1987 casualty loss to his residence, petitioner used the lesser of the repair estimates ($49,000), as his estimate of the loss.
Respondent agrees a casualty loss occurred, but does not agree that petitioner has shown the amount of the casualty loss on his residence. Respondent has agreed that petitioner was entitled to a casualty loss of $10,300 for personal property and $2,375 for an automobile.
Beginning with his 1981 taxable year, petitioner has filed his returns on or about 3 years from the normal due date. Petitioner mailed his 1981 through 1987 Federal income tax returns to respondent, as follows:
Tax Year Date Due Date Mailed
1981 ........ April 15, 1982 March 25, 1985
1982 ........ April 15, 1983 April 11, 1986
1983 ........ April 15, 1984 April 10, 1987
1984 ........ April 15, 1985 March 15, 1988
1985 ........ April 15, 1986 April 15, 1989
1986 ........ April 15, 1987 April 12, 1990
1987 ........ April 15, 1988 April 15, 1991
Petitioner filed his return about 3 years after the normal due date because of circumstances surrounding respondent's audit of petitioner's 1980 return. Because the 1980 audit would resolve how certain employee expenses should be claimed, petitioner delayed the filing of post-1980 returns until the completion of the 1980 audit. At the completion of the 1980 audit, petitioner apparently continued his 3-year lag filing pattern. Petitioner believed that he should perpetuate the 3-year lag and he filed one return each year, but that return was for a taxable year 3 years prior to the one for which a return would normally be filed at the time. Petitioner's belief was founded on his erroneous interpretation that if he filed 3 years' returns in one year he would be subjected to a bunching of income in the catch-up year.
OpinionUnder section 165(a) deductions are allowable for losses not compensated for by insurance, or otherwise. In the case of an individual, section 165(c)(3), subject to the limitations of section 165(h), permits a nonbusiness casualty loss for damage from a storm. Section 165(h) sets forth dollar and percentage limitations or thresholds for claiming casualty losses.
Section 1.165-7(a)(2)(i) and (ii), Income Tax Regs., provides guides to be used in determining the amount of the casualty loss. Section 1.165-7(a)(2)(i), Income Tax Regs., contains a method using a comparison of the fair market values immediately before and after the casualty to arrive at the amount of the loss in value. Section 1.165-7(a)(2)(ii), Income Tax Regs., provides that the cost of repairs is acceptable as evidence of the loss of value if the taxpayer shows that:
(a) the repairs are necessary to restore the property to its condition immediately before the casualty, (b) the amount spent for such repairs is not excessive, (c) the repairs do not care for more than the damage suffered, and (d) the value of the property after the repairs does not as a result of the repairs exceed the value of the property immediately before the casualty.
There is no question about flood damage being classified as a casualty and there is also no dispute here about whether petitioner's residence was damaged by the storm. The sole question we consider is the amount of the loss petitioner is entitled to claim. The burden of proving that amount rests with petitioner. Rule 142(a); Helvering v. Owens [39-1 USTC ¶ 9229], 305 U.S. 468 (1939); Millsap v. Commissioner [Dec. 28,117], 46 T.C. 751, 759 (1966), affd. [68-1 USTC ¶ 9141] 387 F.2d 420 (8th Cir. 1968).
The opinion of landowners as to the value of their property is admissible in evidence without further qualification because of the owners' special relationship to that property. District of Columbia Redevelopment Land Agency v. 13 Parcels of Land, 534 F.2d 337, 339-340 (D.C. Cir. 1976); Klapmeier v. Telecheck International, Inc., 482 F.2d 247 (8th Cir. 1973); Harmon v. Commissioner [Dec. 17,196], 13 T.C. 373 (1949); see also Fed. R. Evid. 701.
Petitioner testified that the fair market value of his house was $142,000 immediately prior to, and $93,000 immediately after, the flood damage. Petitioner derived the predamage value from a real estate valuation that he had received about 2 years prior to the damage. Although the $142,000 valuation may have fluctuated during the 2 years, petitioner, as owner, believed that amount to be the fair market value. Petitioner determined the $93,000 value subsequent to the flood damage by reducing the $142,000 value by the lowest cost of repair to the damage ($49,000).
Respondent does not vigorously argue that the predamage valuation would not be appropriate to establish that fair market value. Respondent recognizes that the time lapse could account for variation in the actual fair market value at the time of the flood. Respondent's argument instead focuses upon the postdamage value. Respondent points out that petitioner paid only $7,565 during 1987 for actual repair of the residence. Although we take that factor into consideration, it is not determinative of the postdamage value. Obviously, petitioner may have been willing to make only minimal repairs to make the house usable, leaving some portion of the repairs for a later time.
At the time of the flood damage, petitioner had lived in the residence for about 10 years and he was in a position to ascertain the value of his residence. We found petitioner's uncontradicted testimony to be credible, and we accept the $142,000 predamage value because of the combination of petitioner's ownership knowledge and the prior valuation.
Regarding the postdamage value, however, no direct correlation has been shown here to the estimated cost of repair and the reduction in value. The cost of repairs could be less, more, or the same as the reduction in value caused by the storm damage. Even though petitioner qualified for a loan of up to $50,000, we cannot tell from this record how that amount was determined. We note that petitioner also had damage to personal property and his automobile, which respondent has agreed amounted to about $12,500 in the aggregate for 1987. Taking all of the foregoing into consideration, we find that petitioner's residence...
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