Gerald and Kathleen Chamales - Page 8




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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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