Casualty Loss Deduction Denied Due to Failure to Prove Basis

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Casualty Loss Deduction Denied Due to Failure to Prove Basis

Posted by Kim Chen on December 20th, 2016

On their timely-filed 2010 return, an Oklahoma couple claimed a casualty loss deduction for two tornado-damaged parcels of land they owned. The IRS issued a deficiency notice, disallowing the entire $127,900 deduction ($88,000 for one parcel, $39,900 for the other) and assessing an accuracy-related penalty. At trial, the couple established, to the Tax Court’s satisfaction, the decline in the land’s value caused by the tornado, but couldn’t prove that they had basis in one of the parcels. Although the husband claimed that he bought the property from his mother, he didn’t show how much he paid her or when the purchase took place. Therefore, the Tax Court denied the $88,000 loss deduction on that parcel. However, the Court didn’t uphold the accuracy-related penalty because the couple correctly valued the properties and didn’t act negligently. Howard B. and Tandia A. Coates, TC Memo 2016-197 (Tax Ct.).