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Petitioners have shown that the funds received from Allstate were
used, in substantial part, to restore their property to the
original condition and though some enhancements were made, in a
relative sense, they were de minimis. Petitioners’ actions
fulfill the use of funds requirement of section 1033. See Davis
v. United States, 589 F.2d 446 (9th Cir. 1979).
Because petitioners have met both requirements of section
1033 and have chosen not to recognize the $130,000 payment
received from Allstate in settlement of their homeowners’
insurance claim as taxable income, we hold for petitioners. Due
to our holding on the income tax deficiency, the penalty is not
applicable.
In light of the foregoing,
Decision will be entered for
petitioners.
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Last modified: May 25, 2011