Milton Craig Werner and Barbara K. Werner - Page 5

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                    This appraisal is to be used ONLY for the function                
               of settling your insurance claim.  Any other use of                    
               this appraisal, such as for selling the property or for                
               income tax deduction purposes, renders it null and                     
          The appraisal finds that the fair market value of the household             
          furniture prior to damage is $4,315 and in damaged condition the            
          value is $1,140.  The replacement value of the books available              
          for valuation was determined to be $2,910, and the "Books and               
          year books badly damaged and thrown away" were "Not valued".                
               Respondent determined that petitioners had failed to                   
          substantiate the casualty loss and denied the deduction in full.            
               Because petitioners failed to meet the requirements of                 
          section 7491(a)(2), the burden of proof does not shift to                   
          respondent in this case.1                                                   
               Losses may be deductible under section 165 to the extent               
          "not compensated for by insurance or otherwise."  In the case of            
          an individual, section 165(c)(3) allows a taxpayer to claim as a            
          deduction any loss from theft or casualty sustained during the              
          taxable year.  The loss is allowed only to the extent that it               
          exceeds $100 and the net casualty loss is in excess of 10 percent           
          of adjusted gross income.  Sec. 165(h).  The amount of the loss             

               1Sec. 7491 is effective with respect to court proceedings              
          arising in connection with examinations by the Commissioner                 
          commencing after July 22, 1998, the date of its enactment by sec.           
          3001(a) of the Internal Revenue Service Restructuring and Reform            
          Act of 1998, Pub. L. 105-206, 112 Stat. 685, 726.                           

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