Lakewood Associates, Robert G. Moore, Tax Matters Partner - Page 10

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            Manual.  Lakewood's tax matters partner Robert G. Moore who owned                         
            the Boy Scout Tract adjacent to the Elbow Lake property also                              
            claimed a section 165 loss deduction in 1989 with regard to the                           
            Boy Scout Tract due to the issuance of 1989 Manual.                                       
                  The issue for our consideration is whether Lakewood is                              
            entitled to a loss deduction in 1989 because of the issuance of                           
            the 1989 Wetlands Manual and MOA.  Petitioner argues that                                 
            Lakewood is entitled to a deduction in the amount of the decrease                         
            in value of the Elbow Lake property as a result of being                                  
            prevented from developing the property for residential use under                          
            the Federal wetland regulations.  Petitioner contends that                                
            Lakewood's inability to use its property for the purpose Lakewood                         
            intended when it purchased the property constitutes an                                    
            involuntary conversion of property.  Accordingly, petitioner                              
            contends that Lakewood is entitled to a loss deduction under                              
            section 165.  On its 1989 tax return, Lakewood characterized the                          
            loss as a governmental taking of property upon the issuance of                            
            the 1989 Manual and the execution of the MOA.  On brief, however,                         
            petitioner contends that a constitutional taking of the property                          
            is not required in this case to establish a deductible loss under                         
            section 165.                                                                              
                  Section 165(a) permits a deduction for any loss sustained                           
            during the taxable year and not compensated for by insurance or                           

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