Imre and Gizella Cziraki - Page 8

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          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).                             






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