Lakewood Associates, Robert G. Moore, Tax Matters Partner - Page 1

                                          109 T.C. No. 21                                             

                                     UNITED STATES TAX COURT                                          

                LAKEWOOD ASSOCIATES, ROBERT G. MOORE, TAX MATTERS PARTNER,                            
                Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent                            

                  Docket No. 24656-93.              Filed December 29, 1997.                          

                        L, a partnership, purchased land on which it                                  
                  intended to build single-family residences.  At the                                 
                  time of purchase, the land was zoned for agricultural                               
                  use and one-third of the land was wetlands under                                    
                  Federal wetland regulations.  In 1988, L applied for                                
                  rezoning of the land to residential, and in 1989, L's                               
                  rezoning application was denied.  Also in 1989, new                                 
                  Federal wetland regulations were issued that resulted                               
                  in about 75 percent of the land’s being classified as                               
                  wetlands.  L is required to obtain a permit under the                               
                  Clean Water Act of 1977, Pub. L. 95-217, sec. 67(a)                                 
                  (commonly called a section 404 permit), 91 Stat. 1566,                              
                  1600, 33 U.S.C. sec. 1344 (1994), before beginning the                              
                  residential project on the wetland portion of the land.                             
                  L did not apply for a permit in 1989, and L did not                                 
                  sell or abandon the property.  The land remains zoned                               
                  for agricultural use.  L claimed a loss deduction under                             
                  sec. 165, I.R.C., in 1989 for the decrease in property                              
                  value of the land based on its inability to use the                                 

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