                            T.C. Summary Opinion 2015-34



                           UNITED STATES TAX COURT



                    FLETCHER H. HYLER, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 11078-13S.                           Filed May 11, 2015.



      Fletcher H. Hyler, pro se.

      Sarah E. Sexton, for respondent.



                                SUMMARY OPINION


      PANUTHOS, Chief Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in effect when the

petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not


      1
          Unless otherwise indicated, subsequent section references are to the
                                                                        (continued...)
                                         -2-

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

      Respondent determined a deficiency of $18,160 in petitioner’s 2010 Federal

Income tax and an accuracy-related penalty under section 6662(a) of $3,632.

After concessions by petitioner2 the only issue in dispute is a new issue that he

raised as to whether he is entitled to a claimed casualty loss deduction for

destruction of personal property in a fire.

                                     Background

      Some of the facts have been stipulated, and they are so found. We

incorporate by reference the parties’ stipulations of fact and the accompanying

exhibits.

      Petitioner resided in California when the petition was filed. Before 2012

petitioner and his wife resided in a single-family, three-bedroom house in

Woodside, California. Petitioner and his wife were tenants and paid monthly rent.

On June 2, 2012, while petitioner and his wife were away visiting friends, a fire



      1
       (...continued)
Internal Revenue Code in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
      2
       At the commencement of trial petitioner conceded all the adjustments in the
notice of deficiency.
                                          -3-

destroyed the house and its contents. The Woodside Fire Protection District

reported that the fire likely started in the kitchen but did not state a specific cause.

Petitioner believes that the fire may have started because of rodents and/or faulty

electrical wiring. Immediately after the fire petitioner and his wife stayed at a

motel, but they later moved into another rental property. Petitioner’s personal

property was insured through a policy with State Farm Insurance Co. The

insurance policy’s limit on recovery was $60,000. Petitioner and his wife received

a $60,000 payment from the insurance company a few weeks after the fire.

      Before 2010 petitioner worked as a self-employed consultant, creating and

consulting in marketing processes. Petitioner also taught a marketing course at

Stanford University. In approximately 2004 petitioner declared bankruptcy as a

result of a downturn in the economy. Petitioner received a discharge in

bankruptcy a few years later. In March 2006 Piers N.P. Mackenzie, an appraiser

and auctioneer, prepared an appraisal report authorized by the bankruptcy trustee.

The report reflected a total value for artwork of $28,320 and furniture and

decorative arts of $71,060, totaling $99,380. Petitioner presented other documents
                                         -4-

to respondent in which petitioner valued artwork, furnishings, and other personal

property at approximately $2 million.3

      After the fire petitioner and his wife made a claim against the landlord’s

insurance company. The claim was denied, and at some point petitioner and his

wife filed a lawsuit with the Superior Court of California, County of San Mateo.

In 2014 the case against the landlord was set for trial. In February 2015 petitioner

indicated that meetings had been scheduled for the purpose of conducting

mediation of the claim against the landlord and the landlord’s insurer.

      Petitioner filed a married filing separate tax return for the taxable year 2010.

As indicated earlier, petitioner has conceded all the adjustments set forth in

respondent’s notice of deficiency. Petitioner submitted to respondent a Form

1040X, Amended U.S. Individual Income Tax Return, for 2010. The return

reflects a signature and date of April 10, 2012. Also part of the record is a copy of

petitioner’s Form 1040, U.S. Individual Income Tax Return, for 2012 reflecting a

signature and date of October 8, 2013. Petitioner claimed a casualty loss of




      3
        There is some discussion in the record about ownership of the personal
property. Petitioner asserted that under California community property law one-
half of the personal property was owned by his wife. Given our conclusions infra,
we need not make any findings with respect to ownership of the personal property
as between petitioner and his wife.
                                       -5-

$1,164,547 on the 2012 return and seeks to carry back some portion of the loss to

2010, the year in issue.4

                                    Discussion

      In general, the Commissioner’s determination set forth in a notice of

deficiency is presumed correct,5 and the taxpayer bears the burden of proving that

the determination is in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). Pursuant to section 7491(a), the burden of proof as to factual matters

shifts to the Commissioner under certain circumstances. Petitioner did not allege

or otherwise show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B).

Therefore, petitioner bears the burden of proof. See Rule 142(a).

      The Court may consider facts relating to tax for years that are not otherwise

within the Court’s jurisdiction where necessary to correctly redetermine the

amount of the tax deficiency for any year properly before the Court. See sec.

6214(b). In particular, in redetermining the amount of a deficiency for a taxable



      4
       The record is somewhat incomplete in that respondent refers to a second
Form 1040X which is not made part of the record. Further, petitioner does not
make clear the extent to which he seeks to carry back the claimed casualty loss to
2010 or any other year. For reasons discussed infra, we need not make any
findings with respect to these matters.
      5
       To the extent respondent determined omitted income, the presumption of
correctness does not play any role in our decision.
                                         -6-

year before the Court, we may decide the correct amount of a net operating loss

carryover or carryback claimed with respect to the year in issue, notwithstanding

that the loss arose in a year that is not within the Court’s jurisdiction. Calumet

Indus., Inc. v. Commissioner, 95 T.C. 257, 274-275 (1990).

      As a general rule, section 165(a) allows as a deduction any loss sustained

during the taxable year and not compensated for by insurance or otherwise. In the

case of an individual, however, section 165(c) limits the deduction to: (1) losses

incurred in a trade or business; (2) losses incurred in any transaction entered into

for profit; and (3) losses of property not connected with a trade or business or with

a transaction entered into for profit if such losses arise from fire, storm, shipwreck,

or other casualty, or from theft.

      A loss is “treated as sustained during the taxable year in which the loss

occurs as evidenced by closed and completed transactions and as fixed by

identifiable events occurring in such taxable year.” Sec. 1.165-1(d)(1), Income

Tax Regs.; see also sec. 1.165-1(b), Income Tax Regs. However, if there exists a

claim for reimbursement with respect to which there is a reasonable prospect of

recovery, no portion of a loss with respect to which reimbursement may be

received is “sustained” until it can be ascertained with reasonable certainty
                                          -7-

whether such reimbursement will be received. Sec. 1.165-1(d)(2)(i), Income Tax

Regs.

        For “eligible losses” an individual may carry back a net operating loss to

each of the three taxable years preceding the taxable year of such loss. Sec.

172(b)(1)(A)(i), (F)(i). An eligible loss includes a loss arising from fire. Sec.

172(b)(1)(F)(ii)(I).

        The parties stipulated to the authenticity of various documents relating to

the personal property destroyed by the fire and the purported value of each item.

Petitioner also testified as to the values of certain items and asserted that the

appraiser’s valuations were inaccurate and did not represent the fair market values.

We need not delve into the issues of (1) whether petitioner substantiated the

amount of the loss or (2) whether he made a proper carryback claim since we

conclude that he is not otherwise entitled to the claimed casualty loss deduction.

        Petitioner made clear during the trial of this case in 2015 that legal

proceedings were being pursued against the landlord and the landlord’s insurance

company. Thus, in 2012, the year of the fire, and at the time of trial there existed a

claim for reimbursement which petitioner was actively pursuing. The statute and

the regulations are clear that a loss is not considered “sustained” until it can be

ascertained with reasonable certainty whether such reimbursement will be
                                         -8-

received. Sec. 1.165-1(d)(2)(i), Income Tax Regs. A casualty loss is not

recognized in the year of actual occurrence if there exists at that time a reasonable

prospect of recovery on a claim for reimbursement. The settlement, the

adjudication, or the abandonment of the claim ordinarily constitutes the event

sufficient to render the loss “sustained” with the meaning of section 165. Hudock

v. Commissioner, 65 T.C. 351, 360 (1975). Petitioner’s claim for reimbursement

from the fire was not resolved in 2012. In fact, at the time of trial in early 2015,

petitioner was involved in the litigation seeking reimbursement for the claimed

loss from the 2012 fire. We conclude that petitioner sustained no loss 2012

evidenced by a closed and completed transaction.

      On the basis of the foregoing we conclude that petitioner is not entitled to

the claimed casualty loss deduction and cannot carry back the claimed loss to

2010. Respondent’s determination in the notice of deficiency, which petitioner

conceded, is sustained, and petitioner’s claim for a carryback loss deduction is

denied in full.

      We have considered the parties’ arguments and, to the extent not discussed

herein, we conclude the arguments to be irrelevant, moot, or without merit.
                            -9-

To reflect the foregoing,


                                        Decision will be entered

                                  for respondent.
