Estate of James W. Boyle - Page 7




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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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