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contrast, in the instant case, the pond did not deteriorate
suddenly; it deteriorated over a 2-3 year period. See Heyn v.
Commissioner, 46 T.C. 302, 308 (1966); Durden v. Commissioner,
supra at 4-5.
Petitioners contend that they properly deducted their loss
in 1994 because that was when they first knew the amount of their
loss. See Bailey v. Commissioner, supra. Petitioners’ reliance
on Bailey is misplaced. In Bailey, the Court held that the
taxpayers sustained their casualty loss in 1974 because they
could not measure their aggregate loss until that year; the
damage to their backyard began in December 1973 and continued
until January 1974. Thus, in Bailey, unlike the instant case,
the casualty occurred suddenly, even though it occurred in 2
taxable years. Petitioners may not deduct as a casualty loss the
expenses of restoring their pond in 1994 since the damage to the
pond occurred gradually.
C. Whether Petitioners Are Liable for an Accuracy-Related
Penalty for Negligence
1. Section 6662(a)
Respondent contends that petitioners are liable for the
accuracy-related penalty for negligence for 1994.
A penalty is imposed under section 6662 equal to 20 percent
of the part of the underpayment which is attributable to
negligence or disregard of rules or regulations. See sec.
6662(a). A taxpayer is not negligent under section 6662(a) if he
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