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such taxable year.” Sec. 1.165-1(d)(1), Income Tax Regs.; see
also sec. 1.165-1(b), Income Tax Regs.
There is no dispute in this case as to the year in which the
Boyles’ casualty loss, if any, was sustained for purposes of
section 165. Although the fire that destroyed the warehouse
occurred in December 1993, the Boyles had a claim for insurance
reimbursement which their insurer disputed. That claim was not
settled until 1995. Because the amount of the insurance
reimbursement could not reasonably be ascertained until the
dispute was settled in 1995, the parties agree that the casualty
loss in question, if any, was sustained in 1995.6
The issue we must decide focuses, instead, on the
calculation of the Boyles’ adjusted basis, an essential component
of the casualty loss calculation. Section 1.165-7(b)(1), Income
Tax Regs., provides that the amount of loss to be taken into
account for purposes of section 165(a) is the lesser of either
(i) the amount which is equal to the fair market value of the
6Even though a casualty occurs in an earlier year, any loss
resulting from that casualty is not considered to be sustained
under sec. 165 until it can be determined with reasonable
certainty whether reimbursement for all or part of the loss will
be received and in what amount. Gale v. Commissioner, 41 T.C.
269, 275 (1963); sec. 1.165-1(d)(2)(i), Income Tax Regs. When a
reasonable prospect of recovery on a reimbursement claim exists
but the amount of the reimbursement cannot be determined with
reasonable certainty, a casualty loss is not sustained until the
claim is settled, adjudicated or abandoned, thus enabling the
taxpayer to calculate the amount of the loss, if any. Licht v.
Commissioner, 37 B.T.A. 1096, 1100 (1938); Allied Furriers Corp.
v. Commissioner, 24 B.T.A. 457, 460 (1931).
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