Theodore Major Green and Jacqueline Green - Page 8

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               Further, the amount of a casualty loss deduction under                 
          section 165(c)(3), which applies to property, is limited to the             
          lesser of the reduction in fair market value as a result of the             
          casualty or the property’s adjusted tax basis.  Godwin v.                   
          Commissioner, T.C. Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th           
          Cir. 2005); sec. 1.165-7(b)(1), Income Tax Regs.                            
               Generally, adjusted basis refers to the amount paid for                
          property increased and decreased by various adjustments such as             
          cost of improvements and depreciation.  Secs. 165(b), 1011(a),              
          1016; secs. 1.1011-1, 1-1012-1(a), Income Tax Regs.                         
               The above tax basis limitation set forth in the regulations            
          prevents petitioners herein from obtaining a casualty loss                  
          deduction relating to petitioner’s uncollected judgment.                    
          Petitioner did not include any portion of the $166,013                      
          uncollected judgment in income and did not establish any tax                
          basis therein.  No section 165(c)(3) loss deduction is allowable            
          with respect thereto.                                                       
               In consolidated docket Nos. 4970-05 and 2475-04, petitioners           
          litigated before us for 2000 and 2001 the same issues raised                
          herein.  We held that petitioner’s Social Security disability               
          benefits are taxable and that petitioners may not deduct under              
          section 165(c)(1) or (2) any portion of the $166,013 uncollected            
          judgment.  See Green v. Commissioner, T.C. Memo. 2006-39.                   
          Petitioners’ appeal thereof is currently pending in the U.S.                
          Court of Appeals for the Ninth Circuit.                                     

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