Estate of James W. Boyle - Page 6




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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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