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not constitute a casualty within the meaning of section
165(c)(3).
Our inquiry, however, does not end there. The damage to
petitioner’s home and personal belongings directly resulted from
the failure of the washing machine hose. The water damage to
petitioner’s house and personal belongings was the result of an
identifiable event, sudden in nature. The failure of the hose
was the precipitating event, and the flooding immediately
thereafter was proximately caused by the event. The damage
resulting from the flood in the house is a casualty within the
meaning of section 165(c)(3). The Commissioner has recognized
the distinction between damage to equipment, which was gradual,
and consequential damage resulting from failure of the equipment.
In Rev. Rul. 70-91, 1970-1 C.B. 37, the Commissioner held as
follows:
A taxpayer suffered rust and water damage to his
rugs, carpets, and drapes when the water heater in his
one-story dwelling burst from normal deterioration
(rust and corrosion) over a period of time and flooded
a portion of the house with water. The taxpayer had no
insurance to reimburse him for these losses.
Held, since the rust and corrosion of the water
heater itself was gradual and progressive, its loss is
not a casualty within the meaning of section 165(c)(3)
of the Internal Revenue Code of 1954.
Held further, the rust and water damage to the
rugs, carpets, and drapes caused by the bursting of the
water heater was the result of an identifiable event,
sudden in nature, fixing a point at which the loss to
the damaged property can be measured, and was also
unexpected or unusual in the context in which the
damage occurred. Therefore, such damage is a casualty
within the meaning of section 165(c)(3) of the Code,
and the taxpayer is entitled to a nonbusiness casualty
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