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extensive silt could be removed. The paddock area was eroded
significantly.
Trinity claimed a $2,028,750 casualty loss on its 1991 tax
return for damage caused by the flood, attributing the loss to
the following assets:
Fair Fair
Adjusted Market Value Market Value
Casualty
Basis Before Flood After Flood Loss
Land improvements & $3,102,000 $8,378,713 $7,137,913 $1,240,800
site preparation
Track, etc. 613,500 1,657,105 1,403,792 253,313
Paddock 563,000 1,520,701 1,379,951 140,750
Barns and surrounding area 1,456,800 3,934,916 3,541,029 393,887
Total 2,028,750
Respondent disallowed the loss in full.
OPINION
We must decide whether Trinity may deduct the casualty loss
reported on its return. Respondent determined that it could not
deduct any of this loss, and petitioner must prove respondent's
determination wrong. Rule 142(a); Welch v. Helvering, 290 U.S.
111 (1933). Petitioner also must prove Trinity's right to the
claimed deduction. Deductions are a matter of legislative grace.
New Colonial Ice Co. v. Helvering, 292 U.S. 435 (1934).
The parties' dispute centers on section 165 and the
regulations thereunder.
Section 165 provides in part:
SEC. 165. LOSSES.
(a) General Rule.--There shall be allowed as a
deduction any loss sustained during the taxable year
and not compensated for by insurance or otherwise.
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