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further allege that the proximity of their residence to that of
Simpson has stigmatized their property and rendered it subject to
permanent buyer resistance.
Conversely, respondent asserts that public attention over
the course of a lengthy murder trial is not the type of sudden
and unexpected event that will qualify as a casualty within the
meaning of the Code. Respondent additionally contends that the
Court of Appeals for the Ninth Circuit, to which appeal in this
case would normally lie, has limited the amount that may be
claimed as a casualty loss deduction to the loss suffered as a
result of physical damage to property. According to respondent,
since petitioners have failed to substantiate any such damage,
they are entitled to no deduction. In respondent’s view, any
decline in market value represents merely a temporary fluctuation
and not a permanent, cognizable loss.
We agree with respondent that petitioners have not
established their entitlement to a casualty loss deduction. The
difficulties suffered by petitioners as a consequence of their
proximity to the Simpson residence do not constitute the type of
damage contemplated by section 165(c)(3). However, because we
find that petitioners acted reasonably and in good faith in the
preparation of their tax return, no additional liability for the
section 6662(a) accuracy-related penalty will be imposed.
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