Lamphere v. Comm'r of Internal Revenue

• Decision Date: 31 May 1978
• Docket Number: Docket No. 1895-76.
• Citation: 70 T.C. 391
• Parties: CLAIRE E. and LULU L. LAMPHERE, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

70 T.C. 391

CLAIRE E. and LULU L. LAMPHERE, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 1895-76.

United States Tax Court

Filed May 31, 1978.

Held:

1. Amount of deduction determined for charitable contributions in excess of that allowed by respondent.

2. Cost of repairs method for establishing the amount of a casualty loss under sec. 1.165-7(a)(2)(ii), Income Tax Regs., is satisfied by actual repairs and expenditures but not by an estimate. Accordingly, petitioners are entitled to a casualty loss deduction of $965 resulting from hurricane Agnes in 1972 for actual repairs to a septic system, a well, and an electrical system. They are not entitled to a casualty loss deduction of $1,500 for the estimated cost of drilling a new well on their property. Farber v. Commissioner, 57 T.C. 714, 719 (1972), followed. Robert M. Tyle, for the petitioners.

George W. Connelly, Jr., for the respondent.

DAWSON, Judge:

This case was assigned to and heard by Special Trial Judge Murray H. Falk pursuant to the provisions of section 7456(c) of the Internal Revenue Code ¹ and Rules 180 and 181, Tax Court Rules of Practice and Procedure.² The Court agrees with and adopts his opinion which is set forth below

OPINION OF THE SPECIAL TRIAL JUDGE

FALK, Special Trial Judge:

Respondent determined deficiencies of $49.74 and $701.29 in petitioners' Federal income taxes for 1970 and 1972, respectively. Concessions having been made by both parties, the only issues for decision are: (1) Whether, for 1970, petitioners are entitled to a deduction for charitable contributions under section 170 in excess of the amount allowed by respondent, and (2) whether, for 1972, petitioners are entitled to a casualty loss deduction under section 165(a) and, if so, in what amount.

FINDINGS OF FACT

Some of the facts have been stipulated, and those facts are so found.

Petitioners filed their 1970 and 1972 joint Federal income tax returns with the Office of Internal Revenue at Buffalo, N. Y. At the time the petition herein was filed, they resided in Woodhull, N. Y.

During 1970, petitioners attended church on a regular basis. They normally attended Woodhull Methodist Church. Petitioners were frequently ill during 1970 and, at different times during the year, each was hospitalized. Mrs. Lamphere attended other churches when her husband was in the hospital, but Mr. Lamphere did not attend church while his wife was hospitalized.

Petitioners made cash contributions to the churches which they attended. They did maintain some records, but they were unable to locate them at the time of trial. In addition to donating money to the churches, petitioners gave cash to various civic and charitable organizations which solicited donations door-to-door. They did not obtain any receipts for those contributions because they were unaware of the need to substantiate their charitable expenditures for income tax purposes with receipts.

On their joint 1970 Federal income tax return, petitioners claimed a charitable contribution deduction under section 170 in the amount of $186.50. Respondent determined that petitioners failed to substantiate any of their charitable contributions, but allowed a deduction of $78 pursuant to audit guidelines.

Petitioners reside in a home which is situated on a slope near a main highway. They purchased the home in 1963 for $7,875 and made many improvements to make it habitable. They installed an electrical system, a septic system, and drilled a water well at costs of approximately $100, $300, and $685, respectively. They also built a garage and a driveway with retaining walls at costs of about $1,500 and $250, respectively.

In June 1972, hurricane Agnes struck the area and caused severe flooding and extensive damage. As a result of the floods, the concrete floor in petitioners' garage was damaged and its back wall collapsed; one of the retaining walls along the driveway was washed out; the electrical system and the septic system were ruined; and some trees and shrubs were destroyed. In addition, the floods caused an overflow from an open garbage dump located about a quarter mile uphill from petitioners' home and refuse was carried down the slope and onto petitioners' property. A substantial amount of refuse was washed into petitioners' well, contaminating their water supply. Consequently, they procured water in milk cans delivered by a neighbor.

Petitioners commenced work immediately after the flood to repair the damage done to their home. They expended approximately $400 for perforated pipe to replace the septic system and spent another $400 for materials to repair the well. The septic system was completely repaired sometime in 1976. The well, however, caused considerable problems. Petitioners realized that they probably had to drill a new well, but they were unable to afford the $1,500 which they estimated it would cost. They based this estimate on the price their neighbors were paying for drilling new wells. At the time of trial, the well water was still not potable. Lastly, petitioners replaced the electrical system in their home at a cost of $265. They were not compensated by insurance or otherwise for the damage.

On their joint 1972 Federal income tax return, petitioners claimed a casualty loss deduction under section 165(a) in the amount of $3,900. They computed the deduction by reducing the claimed fair market value of their home immediately before the casualty ($16,000) by (1) the claimed fair market value of their home immediately after the casualty ($12,000) and (2) the $100 floor pursuant to section 165(c)(3). Respondent disallowed the deduction in its entirety for lack of substantiation.

OPINION

The issues here are essentially factual. Petitioners, of course, have the burden of proving that respondent's determinations are erroneous. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142(a), Tax Court Rules of Practice and Procedure.

Issue 1. Charitable Contribution Deduction for 1970

The only evidence which petitioners offered to substantiate their charitable contributions deduction for 1970 was Mrs. Lamphere's oral testimony under oath. ³ They submitted no documentary or corroborating evidence whatever.

We found Mrs. Lamphere's testimony to be candid, forthright, and credible. Nonetheless, in respect of this issue, her testimony was nonspecific and based on vague recollections (which is certainly understandable in light of the fact that 7 years have elapsed since the tax year in question). Being convinced that petitioners did make qualifying charitable contributions during 1970, we are required to make an approximation of the amount thereof in accordance with our best judgment. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930); see Mennuto v. Commissioner, 56 T.C. 910, 923-924 (1971). On the whole, we believe and therefore hold that petitioners are entitled to a charitable contribution deduction in the amount of $100 for 1970.

Issue 2. Casualty Loss Deduction for 1972

Section 165(a) permits individuals to deduct losses suffered on the damage to or destruction of nonbusiness property by reason of fire, storm, or other casualty to the extent that the loss from each casualty exceeds $100 and is not compensated for by insurance or otherwise. The proper measure of the loss sustained has generally been said to be the difference between the fair market value of the property immediately before the casualty and its fair market value immediately thereafter, but not exceeding its adjusted basis. See Helvering v. Owens, 305 U.S. 468 (1939); Millsap v. Commissioner, 46 T.C. 751, 759 (1966), affd. 387 F.2d 420 (8th Cir. 1968); sec. 1.165-7(b)(1), Income Tax Regs.

Physical damage to property caused by a flood is clearly a casualty within the purview of section 165(c)(3), and respondent apparently concedes that petitioners suffered some such damage. The questions to be resolved, then, are: (a) the amount, if any, of the actual loss sustained and (b) the adjusted basis of the property in petitioners' hands.

Mrs. Lamphere testified that petitioners purchased their home in 1963 for $7,875, that they added a number of improvements to make it habitable, and to the approximate cost of those improvements. Her testimony is sufficient to establish petitioners' adjusted basis for the property in excess of the amount of the loss claimed on their 1972 tax return. See Clapp v. Commissioner, 36 T.C. 905 (1961), affd. 321 F.2d 12 (9th Cir. 1963); Citrus Soap Co. of California v. Lucas, 42 F.2d 372 (9th Cir. 1930), revg. and remanding 14 B.T.A. 1155 (1929).

To establish the amount of...