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billing software. Because the computer was used by petitioners
for business purposes, their ABIC insurance policy did not cover
the loss.
Petitioners had been depreciating the Tandy computer, Tandy
printer, and Tandy hard disk drive since the taxable year 1988.
They claimed depreciation related to three computers, three
printers, and a hard disk drive in amounts totaling $1,240 on
each of their Federal income tax returns for the taxable years
1988, 1989, and 1990. It is not clear which of the computers
petitioners had been depreciating was the one for which the
$6,880 business casualty loss was claimed.
In the notice of deficiency respondent disallowed the
business casualty loss deduction in the amount of $6,880 claimed
by petitioners on their 1991 return, stating that they had not
established that the lesser of the decrease in the fair market
value of their computer(s) as a result of the 1991 floods or
their adjusted basis in the computer(s) exceeded their insurance
reimbursement.
In 1991, the water pipes in petitioners' kitchen broke.
They received reimbursement in the amount of $7,744.69 from
Kemper Insurance Co. for the damage to the pipes. Their ABIC
insurance policy did not cover the damage to the pipes in the
kitchen because they were located below the flood water line. At
trial, petitioners claimed for the first time that they had
incurred a casualty loss of $12,566.62 in 1991, before insurance
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