-8- an act contrary to their argument that the road is a part of the real property that surrounds it. The regulations require that petitioners identify each separate piece of property damaged and isolate the basis in that asset. Petitioners have failed to identify what portion, if any, of the original purchase price should be allocated to the road that existed on the property at the time of purchase. In addition, we note that petitioners have not alleged or shown that any amounts spent by Mr. Cziraki in personally constructing dirt/gravel extensions of the road were capitalized or added to petitioners' basis in the property. Petitioners are not entitled to apply their entire cost basis in the two properties to the road damage because of the limitation of section 1.165-7(b)(1), Income Tax Regs., and petitioners' zero basis in the personally constructed road. Accordingly, petitioners’ casualty loss is limited to $6,844, their cost basis in the 1984 road extension less allowable depreciation. The next issue for our consideration is whether petitioners are liable for an accuracy-related penalty pursuant to section 6662(a). Section 6662(a) imposes an accuracy-related penalty of 20 percent on any portion of an underpayment of tax that is attributable to items set forth in section 6222(b). Respondent contends that petitioners were negligent with respect to their understatement of tax under section 6662(b)(1).Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011