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Respondent determined a $2,741 deficiency in petitioners’
1995 Federal income tax and a $548.20 penalty under section 6662.
The issue for decision is whether petitioners are entitled to a
casualty loss deduction in excess of the amount allowed by
respondent.
Some of the facts have been stipulated and are so found.
Petitioners are, and were during all relevant periods, married to
each other. At the time the petition was filed, they resided in
Fredonia, Kentucky.
Sometime in early 1993, petitioners and their children moved
from a rented house in Nashville, Tennessee, into a 3-bedroom,
2-bath, ranch-style brick house that they purchased in
Hendersonville, Tennessee (the Hendersonville residence). On
July 7, 1995, one of petitioners’ daughters plugged a vacuum
cleaner into an electrical outlet located in petitioners’
bedroom. Through some fault in either the vacuum cleaner or the
outlet, a fire started in that bedroom that caused substantial
damage to the Hendersonville residence and destroyed or badly
damaged most of the personal property located in the house.
At the time, petitioners were insured against fire losses
by the Westfield Companies (Westfield). Under the terms of
their insurance coverage, subject to various conditions and
limitations, petitioners were entitled to recover the replacement
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