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property immediately before the casualty reduced by the fair
market value of the property immediately after the casualty or
(ii) the amount of the taxpayer’s adjusted basis prescribed in
section 1.1011-1, Income Tax Regs., for determining the loss from
the sale or disposition of the property involved. The amount
determined is then reduced by any insurance or other compensation
received to arrive at the deduction allowable. Sec. 165(a); sec.
1.165-1(c)(4), Income Tax Regs.; see also Helvering v. Owens, 305
U.S. 468 (1939); Pfalzgraf v. Commissioner, 67 T.C. 784 (1977);
Millsap v. Commissioner, 46 T.C. 751 (1966), affd. on other
issues 387 F.2d 420 (8th Cir. 1968); sec. 1.165-7(b)(3), Income
Tax Regs.
The parties agree that the difference between the fair
market value of the old warehouse before and after the fire is
between $600,000 to $700,000 and that the Boyles received
insurance reimbursement of $553,793. The parties disagree,
however, regarding the calculation of the Boyles’ adjusted basis
in the old warehouse. Respondent contends that the Boyles’
adjusted basis must be calculated as of December 13, 1993, the
date the fire occurred, citing sections 1.165-7(b)(1) and 1.165-
1(c)(4), Income Tax Regs., in support of his position.
Petitioners reject respondent’s argument, pointing out that the
regulations cited by respondent do not state whether a taxpayer’s
adjusted basis is calculated as of the date the casualty occurred
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