                  T.C. Summary Opinion 2002-23



                     UNITED STATES TAX COURT


    ROBIN E. SCHMIDT, a.k.a. ROBIN E. TRIPALDI, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent




     Docket No. 7994-00S.               Filed March 26, 2002.


     Robin E. Schmidt, pro se.

     Gary M. Slavett, for respondent.



     GOLDBERG, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
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     In a notice of deficiency, respondent determined that

petitioner is liable for a deficiency in Federal income tax for

1995 of $2,953.

     After concessions made by petitioner,1 the sole issue for

decision is whether petitioner is entitled to a casualty loss for

earthquake damage to her residence.

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    At the time the petition

was filed, petitioner resided in Encino, California.

Background

     In 1994, petitioner owned and resided in a condominium

located at 21901 Burbank Boulevard, #161, Woodland Hills,

California (the condominium), with her two minor children and her

companion, Richard Tripaldi (Mr. Tripaldi).    Petitioner and Mr.

Tripaldi were married in 1996.    The condominium was a trilevel

unit with three bedrooms, three bathrooms, and an attached

garage.   On January 17, 1994, an earthquake occurred in

Northridge, California (Northridge earthquake).    Immediately

after the Northridge earthquake petitioner, her children, and Mr.

Tripaldi moved out of the condominium and stayed at a hotel in


     1
          Petitioner concedes respondent’s disallowance of a
charitable contribution deduction of $187 and miscellaneous
itemized deductions of $1,195 claimed on her Schedule A, Itemized
Deductions, for 1995.
                               - 3 -

Ventura County.   After a few days at the hotel, they moved back

to the condominium.   When petitioner returned to the condominium,

she found the place in disarray.   Visible cracks in the walls

allowed sunlight to shine into the interior of the condominium

and the front door could not be closed.   In May 1994, petitioner,

her children, and Mr. Tripaldi moved into a single-family home in

Woodland Hills (the home) about 1 mile away.   After May 1994,

petitioner did not make any payments on the mortgage obligation

underlying the condominium.   Petitioner received a letter from

CenFen Bank (CenFen), dated August 18, 1995, informing her that

her account “is seriously delinquent, and subject to immediate

foreclosure.”   In a letter dated October 2, 1995, petitioner

filed a “hardship request” to postpone the foreclosure proceeding

on her condominium.   On March 26, 1996, a Notice of Default and

Election to Sell Under Deed of Trust was filed against the

condominium, and foreclosure was completed on December 6, 1996.

     After petitioner, her children, and Mr. Tripaldi moved to

their new home, petitioner attempted to rent the condominium but

was not able to find a tenant until November of 1994.

     Before the Northridge earthquake, on June 30, 1993,

petitioner quitclaimed 50-percent ownership of the condominium to

Mr. Tripaldi.   On August 29, 1994, Mr. Tripaldi quitclaimed his

ownership interest in the condominium back to petitioner.

According to testimony at trial, petitioner and Mr. Tripaldi
                                 - 4 -

entered into an arrangement where Mr. Tripaldi lent approximately

$30,000 to petitioner for the purchase of the home.    The loan

obligation was to be secured by petitioner’s condominium.    No

loan documents were created to memorialize the loan.    In other

words, the parties’ intent was to enter into a secured loan

transaction by use of the 50-percent interest quitclaimed to Mr.

Tripaldi.   As exhibited by the quitclaim deed, dated August 29,

1994, Mr. Tripaldi testified that he relinquished his “security

interest” in the condominium when petitioner purportedly

satisfied her loan obligation.

     Petitioner filed and was granted an automatic extension of

time to file her 1995 Federal income tax return.   Petitioner

timely filed her 1995 Federal income tax return, in which she

reported a casualty loss of $21,935.49 attributable to damage to

the condominium from the 1994 Northridge earthquake.    Petitioner

attached to her 1995 return a four-page, single-spaced, itemized

list of necessary repairs to the condominium (repair list).

Petitioner based the repair list, categorized by the estimated

cost for damage which occurred in each room, from an itemized

list of repairs prepared by State Farm Insurance Co. (State

Farm), dated June 20, 1996.   Petitioner did not make the repairs

or incur any repair expenses for items listed on the repair list

during 1995 or any other year.

     On her 1994 Federal income tax return, petitioner claimed a
                               - 5 -

casualty loss deduction of $51,029 for damage to her personal

property and fixtures to the condominium.   Included in the

claimed casualty loss were the following homeowners association

fees:

     Homeowners Association Emergency Assessment
        (A Fund) Warner Village III                       $8,600
     Homeowners Association Insurance Deductible
        (B Fund) Warner Village III                       $4,000
     Homeowners Association Insurance 10% Exclusion
     (C Fund) Warner Village III                          $2,179

Respondent allowed petitioner’s casualty loss deduction for 1994,

and the above casualty loss is not in dispute in this case.

     In the notice of deficiency, respondent disallowed

petitioner’s casualty loss deduction for 1995 because petitioner

failed to substantiate the amount of the purported casualty loss.

In the alternative, respondent contends that if the Court were to

decide that petitioner’s loss was substantiated, then the loss

was claimed in the incorrect year, and also that petitioner owned

50 percent of the Woodland Hills condominium, entitling her to

only 50 percent of the claimed loss.

Discussion

     Section 165(a) generally allows a deduction for “any loss

sustained during the taxable year and not compensated for by

insurance or otherwise.”   Individuals may deduct losses to

property caused by casualties such as earthquakes.    Sec.

165(c)(3).   The loss must exceed $100 and 10 percent of the
                               - 6 -

individual’s adjusted gross income.    Sec. 165(h)(1) and

(2)(A)(ii).

     The regulations provide two methods of valuing a casualty

loss; namely, the decrease in fair market value or the cost of

repairs.   Sec. 1.165-7(a)(2), Income Tax Regs.   To be eligible

for a casualty loss deduction based on the decrease in the fair

market value, a taxpayer must prove (a) the fair market value of

the property immediately before and immediately after the

casualty, (b) the amount of insurance reimbursement, and (c) the

adjusted basis in the property.   Helvering v. Owens, 305 U.S. 468

(1939); Lamphere v. Commissioner, 70 T.C. 391, 395-396 (1978);

Cornelius v. Commissioner, 56 T.C. 976, 979 (1971); sec. 1.165-

7(a)(2), Income Tax Regs.2


     2
          Sec. 1.165-7(a)(2), Income Tax Regs., provides:
     (2) Method of valuation. (i) In determining the amount
     of loss deductible under this section, the fair market
     value of the property immediately before and
     immediately after the casualty shall generally be
     ascertained by competent appraisal. This appraisal
     must recognize the effects of any general market
     decline affecting undamaged as well as damaged property
     which may occur simultaneously with the casualty, in
     order that any deduction under this section shall be
     limited to the actual loss resulting from damage to the
     property.

          (ii) The cost of repairs to the property damaged
     is acceptable as evidence of the loss of value if the
     taxpayer shows that (a) the repairs are necessary to
     restore the property to its condition immediately
     before the casualty, (b) the amount spent for such
     repairs is not excessive, (c) the repairs do not care
                                                   (continued...)
                                - 7 -

     The cost of repairs may be considered if the taxpayer shows

that (a) the repairs are necessary to restore the property to its

condition immediately before the casualty, (b) the amount spent

for the repairs is not excessive, (c) the repairs are made only

to the damaged portion of the property, and (d) the repairs do

not cause the value of the property to exceed the value of the

property immediately before the casualty.    Lamphere v.

Commissioner, supra at 395-396; Farber v. Commissioner, 57 T.C.

714, 719 (1972); sec. 1.165-7(a)(2)(ii), Income Tax Regs.

     We note that in the instant case the claimed casualty loss

is based upon the itemized repair list attached to petitioner’s

1995 return.    The parties stipulated that this repair list is

identical to the State Farm estimated repair list, dated June 20,

1996.    The parties further stipulated that none of the repairs

were actually made, nor did petitioner expend any money for the

repairs.    Simply put, petitioner made no repairs to her

condominium unit.    According to Farber v. Commissioner, supra at

719, in order for a taxpayer to use the “cost of repair” method

of valuation, the taxpayer must first show that “actual repairs

and expenditures, not just estimates” were made.    We stated in

Farber that “in cases where this Court has permitted the ‘cost of


     2
      (...continued)
     for more than the damage suffered, and (d) the value of
     the property after the repairs does not as a result of
     the repairs exceed the value of the property
     immediately before the casualty.
                                 - 8 -

repairs’ method to be used to ascertain the amount of the loss,

the repairs and expenditures were actually made * * *       The use of

estimates has not been regarded as persuasive.”       Id. at 719; cf.

Clapp v. Commissioner, 36 T.C. 905, 908 (1961), affd. 321 F.2d 12

(9th Cir. 1963); Harmon v. Commissioner, 13 T.C. 373, 382-383

(1949).    Like the taxpayer in Farber, petitioner did not provide

the actual costs she incurred in repairing the condominium during

1995 because no repairs were made.       Rather, the only evidence

submitted is the estimated cost of repair list compiled by State

Farm.     Accordingly, we find that petitioner failed to

substantiate the claimed casualty loss deduction by the cost of

repair method of valuation.

     Petitioner may use the decrease in fair market valuation

method to calculate the casualty loss; however, we have only

sparse testimony from petitioner and Mr. Tripaldi as to the value

of the condominium before or immediately after the Northridge

earthquake.     Petitioner did not provide expert testimony,

appraisal reports, or other documents to corroborate her basis

for the fair market value.     See sec. 1.165-7(a)(2), Income Tax

Regs.     It is well settled that we are not required to accept a

taxpayer’s self-serving testimony in the absence of corroborating

evidence.     Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992).

     Finally, we note that petitioner does not argue that her

out-of-pocket costs for actual repairs due to damage from the
                                - 9 -

Northridge earthquake were deducted as a casualty loss on her

1994 return, which respondent does not dispute.      At the core of

petitioner’s case is her desire to recover some of the lost

insurance reward which she was denied because the condominium was

foreclosed.

     On the basis of the above, we find that petitioner failed to

substantiate the amount of the casualty loss, and, therefore, it

is unnecessary for us to address respondent’s alternative

arguments.    Accordingly, petitioner is not entitled to the

casualty loss deduction during the year in issue.         Respondent is

sustained on this issue.

     We have considered all arguments by the parties, and, to the

extent not discussed above, conclude that they are irrelevant or

without merit.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                             Decision will be entered

                                        for respondent.
