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OPINION
TANNENWALD, Judge: Respondent determined a deficiency in
petitioners' 1992 Federal income tax in the amount of $6,225.
The issue is whether petitioners may deduct legal fees paid
during 1992 and incurred as a result of a dispute with their
insurance carrier over the replacement cost of their residence,
which had been destroyed by fire.
All section references are to the Internal Revenue Code in
effect for the year in issue.
All the facts have been stipulated. The stipulation of
facts and attached exhibits are incorporated herein by this
reference.
At the time their petition was filed, petitioners resided in
Piedmont, California.
On October 20, 1991, petitioners' then principal residence
in Oakland, California, (the Oakland Hills residence) was
destroyed by a firestorm. Petitioners had lived in that
residence continuously from the time they purchased it in 1967
until its destruction. The residence was not held either for
rental or sale during 1991.
At the time of its destruction, the residence and its
contents were insured against fire loss by Republic Insurance
Company (Republic). The insurance policy provided that, in the
event of a loss, petitioners were to receive the replacement cost
of the residence.
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