                  T.C. Summary Opinion 2005-83



                     UNITED STATES TAX COURT



                    VERTA HILL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5946-04S.             Filed June 16, 2005.


     Verta Hill, pro se.

     Kathleen C. Schlenzig, 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, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
                                 - 2 -

     Respondent determined a deficiency in petitioner’s Federal

income tax of $2,745 for the taxable year 2001.

     The issue for decision is whether petitioner is entitled to

a casualty loss deduction of $19,068 for damage to her personal

property and residence due to a flood.

                            Background

     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.   Petitioner resided in

Chicago, Illinois, on the date the petition was filed in this

case.

     During 2001, petitioner resided in a single-family home,

consisting of a first floor and a full basement, in Chicago,

Illinois.   On or about August 2, 2001, a severe 3-hour

thunderstorm dumped up to 4 inches of rain on a 30-mile corridor

from Lake County, south through Cook County, and on to Kankakee.

The flash flooding caused by the thunderstorm damaged thousands

of homes.   Governor George Ryan declared the area a State

disaster area.   Damage from the torrential rain shut down

expressways and Chicago Transit Authority trains.   The resulting

runoff overwhelmed the city’s combined storm and sewer systems,

causing sewer backup flooding.

     Petitioner returned home on August 2, 2001, to discover that

her basement had flooded.   Petitioner had insurance which,
                                  - 3 -

unfortunately, did not cover flooding.         Petitioner did not

attempt to file any claim with her insurance carrier.

     Petitioner timely filed a Federal income tax return for the

2001 taxable year.    On her Form 1040, U.S. Individual Income Tax

Return, petitioner claimed a casualty loss deduction of $19,068,

after application of the $100 limitation, pursuant to section

165(h)(1), and the 10 percent of adjusted gross income

limitation, pursuant to section 165(h)(2).           Petitioner attached

to the Form 1040 a Schedule A, Itemized Deductions, and a Form

4684, Casualties and Thefts, along with schedules that were meant

to verify such casualty calculations.

     On Form 4684, petitioner described the property for which

she claimed a casualty loss as:         “Clothing acquired 01-01-01,

appliances, tools, and electronics”.         The Form 4684 reflected in

pertinent part as follows:

     Section A--Personal Use Property

     Property Description               Clothing acquired 01-01-01
     Line A2. Cost or other basis of each property        $9,200
     Line A3. Insurance or other reimbursement                 0
     Line A5. Fair market value before casualty or theft   8,900
     Line A6. Fair market value after casualty or theft        0
     Line A7. Subtract line 6 from line 5                  8,900
     Line A8. Enter the smaller of line 2 or line 7        8,900
     Line A9. Subtract line 3 from line 8                  8,900

     Property Description               Appliances
     Line A2. Cost or other basis of each property         $5,850
     Line A3. Insurance or other reimbursement                  0
     Line A5. Fair market value before casualty or theft    4,950
     Line A6. Fair market value after casualty or theft         0
     Line A7. Subtract line 6 from line 5                   4,950
     Line A8. Enter the smaller of line 2 or line 7         4,950
     Line A9. Subtract line 3 from line 8                   4,950

     Property Description               Tools
     Line A2. Cost or other basis of each property         $1,500
                                     - 4 -
     Line   A3.   Insurance or other reimbursement                  0
     Line   A5.   Fair market value before casualty or theft    1,500
     Line   A6.   Fair market value after casualty or theft         0
     Line   A7.   Subtract line 6 from line 5                   1,500
     Line   A8.   Enter the smaller of line 2 or line 7         1,500
     Line   A9.   Subtract line 3 from line 8                   1,500

     Property Description               Electronics
     Line A2. Cost or other basis of each property             $9,200
     Line A3. Insurance or other reimbursement                      0
     Line A5. Fair market value before casualty or theft        7,500
     Line A6. Fair market value after casualty or theft             0
     Line A7. Subtract line 6 from line 5                       7,500
     Line A8. Enter the smaller of line 2 or line 7             7,500
     Line A9. Subtract line 3 from line 8                       7,500

     Line   A10D.   Casualty or theft loss                     22,850
     Line   A11D.   The smaller of line 10 or $100                100
     Line   A12D.   Subtract line 11 from line 10              22,750
     Line   A13D.   Add the amounts on line 12 of all
                    Forms 4684                                 22,750
     Line A14D.     Add the amounts on line 4 of all
                    Forms 4684                                      0
     Line A16D.     If line 14 is less than line 13, enter
                    the difference                             22,750
     Line A17D.     Enter 10% of your adjusted gross income
                    from Form 1040, line 37                      3,682
     Line A18D.     Total personal property loss amount        $19,068

     Petitioner attached to her return a schedule for each

category.      Each schedule contained the following information:

(1) A description of each item purportedly lost; (2) the quantity

of each item purportedly lost; (3) the number of years prior to

the loss that petitioner purportedly acquired each item of

property; (4) the cost or other basis of each item of property;

(5) the fair market value of each item of property before the

casualty; and (6) the fair market value of the property following

the casualty.

     The schedules reflected in pertinent part as follows:

     Schedule - Clothing 01-01-01 (Women’s clothing)
     Item        No. of      Date        Cost or     FMV before      FMV after
                 items     acquired1    other basis2  casualty       casualty

     Blouses          13                     $30.00      $390.00         $0
                              - 5 -
Work shoes        3                   130.00         390.00       0
Coats             4                   140.00         560.00       0
Dresses          11                    75.00         825.00       0
                                                     3
Hats              4                    13.00           60.00      0
Jackets           3                    75.00         225.00       0
Scarves           9                    15.00         135.00       0
Shirts           12                    30.00         360.00       0
Shoes             7                    70.00         490.00       0
                                                 4
Pants            13                    75.00       1,125.00       0
Wind breaker      2                    75.00         150.00       0
Suits             9                   129.00       1,161.00       0
Sweaters          7                    25.00         175.00       0
Sweatsuit        11                    12.00         132.00       0
Nightgown        10                    20.00         200.00       0
Leather coat      2                   175.00         350.00       0
Softcover book   25                     8.50         212.50       0
Hardcover book    2                    25.00           50.00      0
Artwork          1                     75.00           75.00      0
                                         Total   $7,065.50        0
      1
        Date item was acquired prior to the year of the casualty.
      2
        Amount of individual item.
      3
        Petitioner did not explain how she calculated this amount.    The
appropriate calculation appears to be $52.
      4
        Petitioner did not explain how she calculated this amount.    The
appropriate calculation appears to be $975.


Schedule - Clothing 01-01-01 (Children’s clothing)
Item        No. of      Date        Cost or     FMV before     FMV after
            items     acquired1    other basis2  casualty      casualty

Blouses          9                     $30            $135       $0
Boots            2                      75             150        0
Coats            4                      60             240        0
Dresses         10                      35             350        0
Gloves           5                       2              10        0
Hats             3                      10              30        0
Shirts          13                      15             195        0
Shoes            4                      17              68        0
Slacks          10                      25             250        0
Socks           15                       3              45        0
Sport jackets    2                      20              40        0
Sweaters         6                      12              72        0
Underwear       20                       6             120        0
Bras            15                      10             150        0
Undershirt      25                       5             125        0
Slips           10                       5              50        0
Long johns      12                       6              72        0
Tights           5                      10              50        0
                                             Total 3$2,152        0
      1
        Date item was acquired prior to the year of the casualty.
      2
        Amount of individual item.
      3
        Petitioner added the total amounts for the women’s clothing and
children’s clothing and then subtracted $317.50 for “depreciation”
to calculate the amount of $8,900, used on the Form 4684 for
clothing. ($7,065.50 + $2,152 - $317.50 = $8,900)
                                  - 6 -
Schedule - Appliances
Item        No. of      Date          Cost or           FMV before    FMV after
            items     acquired1      other basis2        casualty     casualty

Carpet          1                         $2,500           $2,500       $0
Sofa            1                          1,250            1,250        0
Television      1                            575              575        0
Deep freezer    1                            475              475        0
Refrigerator    1                            550              550        0
Desk            2                            253              506        0
                                                         3
                                                Total      $5,856        0
      1
        Date item was acquired prior to the year of the casualty.
      2
        Amount of individual item.
      3
        Petitioner decreased this amount by $900 for “depreciation” which
resulted in a final claimed casualty loss for electronics of
$4,956. However, petitioner only claimed a casualty loss of
$4,950 for appliances.

Schedule - Tools
Item        No. of      Date          Cost or           FMV before    FMV after
            items     acquired1      other basis2        casualty     casualty

Dryer3          1                          $460              $460       $0
Washing mach.   1                           400               400        0
Snow blower     1                           500               500        0
Lawn mower      1                           189               189        0
                                                         4
                                               Total       $1,549        0
      1
        Date item was acquired prior to the year of the casualty.
      2
        Amount of individual item.
      3
        In the above schedule and on Form 4684 petitioner claims the
dryer was a total loss. However, at trial, petitioner admitted
that she repaired the dryer and did not throw it away.
      4
        Petitioner did not decrease this amount for “depreciation”.

Schedule - Electronics
Item        No. of      Date          Cost or           FMV before    FMV after
            items     acquired1      other basis2        casualty     casualty

Computer      1       2   years           $2,785             $2,785     $0
Printer       1       1   year             1,400              1,400      0
Games boys    3       0   years               35                105      0
Sega Genesis  1       0   years              150                150      0
Playstation 2 1       0   years              230                230      0
Games        20       0   years               50              1,000      0
Supplies3             2   years            3,400              3,400      0
Computer      5       0   years               35                175      0
 books
                                                         4
                                               Total      $9,245           0
      1
        Date item was acquired prior to the        year of the casualty.
      2
        Amount of individual item.
      3
        Supplies include: software, files,         disks, copier paper, etc.
      4
        Petitioner decreased this amount by        $1,700 for “depreciation”
which resulted in a final claimed casualty         loss for electronics of
$7,500.
                                     - 7 -

     With respect to each item identified on each schedule,

petitioner reported that the cost or other basis of the property

was the same as the fair market value of the property before the

casualty.   Petitioner also reported that each item had a fair

market value of zero after the casualty.            However, once

petitioner calculated the total purported loss for each category

of property, petitioner reduced the loss for what she described

as “depreciation” as follows:

     Category      FMV before   Reduction for     Reported    Percentage
                    casualty    depreciation        loss      reduction

     Clothing      $9,217.50       $317.50        $8,900.00      3.3%
     Appliances     5,850.00        900.00         4,950.00     15.4
     Tools          1,500.00          0.00         1,500.00      0.0
     Electronics    9,200.00      1,700.00         7,500.00     18.5

     On January 7, 2004, respondent issued petitioner a notice of

deficiency for taxable year 2001.            In the notice of deficiency,

respondent disallowed petitioner’s claimed casualty loss

deduction and determined petitioner is liable for a deficiency in

the amount of $2,745.

                                  Discussion

     As a general rule, the determinations of the Commissioner in

a notice of deficiency are presumed correct, and the taxpayer

bears the burden of proving the Commissioner’s determinations in

the notice of deficiency to be in error.            Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).            As one exception to this

rule, section 7491(a) places upon the Commissioner the burden of

proof with respect to any factual issue relating to liability for
                                - 8 -

tax if the examination of the taxpayer’s records for the subject

year began after July 22, 1998, and the taxpayer maintained

adequate records, satisfied the substantiation requirements,

cooperated with the Commissioner, and introduced during the Court

proceeding credible evidence with respect to the factual issue.

In the present case, the burden does not shift with respect to

any factual issue relating to petitioner’s liability for the

income tax deficiency because petitioner neither alleged that

section 7491 was applicable nor established that she complied

with the substantiation requirements of section 7491(a), as shown

below.    Sec. 7491(a)(2)(A) and (B).

     Deductions are a matter of legislative grace and are allowed

only as specifically provided by statute, and petitioner bears

the burden of proving that she is entitled to the claimed

deduction.    INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).    With these well-established propositions in mind, we

must determine whether petitioner has satisfied her burden of

proving that she is entitled to a casualty loss deduction

allegedly incurred during taxable year 2001.    Respondent argues

that petitioner has failed to produce any credible evidence to

substantiate her claimed loss, including the occurrence of any

casualty, or, if a casualty occurred, the amount deductible.
                                    - 9 -

     Section 165(a)1 allows as a deduction any loss sustained

during the taxable year and not compensated for by insurance or

otherwise.   Section 165(c) limits the allowance of losses in the

cases of individuals.        Section 165(c)(3) allows as a deduction to

an individual certain losses commonly referred to as casualty

losses.   A casualty loss is allowable to an individual for a loss

of property not connected with a trade or business or with a

transaction entered into for profit if the loss results from

“fire, storm, shipwreck, or other casualty”, subject to

limitations set forth in section 165(h).

     Section 165(h)(1) provides that any loss of an individual

described in section 165(c)(3) is allowed only to the extent that



     1
      SEC. 165.       LOSSES.

          (a) General Rule.--There shall be allowed as a
     deduction any loss sustained during the taxable year and not
     compensated for by insurance or otherwise.

                  *      *      *   *       *   *   *

          (c) Limitation on losses of individuals.--In the case
     of an individual, the deduction under subsection (a) shall
     be limited to–-

                  (1) losses incurred in a trade or business;

               (2) losses incurred in any transaction entered
          into for profit, though not connected with a trade or
          business; and

               (3) except as provided in subsection (h), losses
          of property not connected with a trade or business or a
          transaction entered into for profit, if such losses
          arise from fire, storm, shipwreck, or other casualty,
          or from theft.
                              - 10 -

the amount of the loss arising from each casualty exceeds $100.

Section 165(h)(2) provides that if the personal casualty losses

for a taxable year exceed the personal casualty gains for the

year, the losses are allowable only to the extent of the sum of

the personal casualty gains for that taxable year, plus so much

of the excess as exceeds 10 percent of adjusted gross income for

that taxable year.   Thus, where there are no personal casualty

gains for a taxable year, personal casualty losses (in excess of

$100 per casualty) are allowable to the extent that they exceed

10 percent of adjusted gross income for that taxable year.

     The method of valuation to be used in determining a casualty

loss is prescribed in section 1.165-7(a)(2), Income Tax Regs.,

which provides as follows:

     (i) In determining the amount of loss deductible under * *
     * [section 165], 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 * * * [section 165] 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 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.
                              - 11 -

      In the case of an item held for personal use, the amount

deductible is governed by section 1.165-7(b)(1), Income Tax

Regs., which provides that the amount of the loss to be taken

into account for purposes of section 165(a) shall be the lesser

of:   (1) The amount which is equal to the fair market value of

the property immediately before the casualty reduced by the fair

market value of the property immediately after the casualty, or

(2) the amount of the adjusted basis for determining the loss

from the sale or other disposition of the property involved.

      Section 6001 and the regulations promulgated thereunder

require taxpayers to maintain records sufficient to permit

verification of income and expenses.   As a general rule, if the

trial record provides sufficient evidence that the taxpayer has

incurred a deductible expense, but the taxpayer is unable to

adequately substantiate the precise amount of the deduction to

which she is otherwise entitled, the Court may estimate the

amount of the deductible expense and allow the deduction to that

extent, bearing heavily against the taxpayer whose inexactitude

in substantiating the amount of the expense is of her own making.

Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).   However, in

order for the Court to estimate the amount of an expense, the

Court must have some basis upon which an estimate may be made.

Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).   Without
                                - 12 -

such basis, any allowance would amount to unguided largesse.

Williams v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957).

     Although we believe that petitioner sustained a casualty

loss from flooding, she still has to substantiate the amount of

the losses due to the casualty.

     Petitioner testified that the flood which occurred in the

Chicago area in August of 2001 resulted in her basement’s taking

on water, with the depth of this water being approximately 3 feet

in one area of the basement and approximately 13 inches in

another area of the basement.    However, respondent claims that

Joseph Ferrick, respondent’s counsel, visited petitioner’s home

on the morning of November 27, 2004, and noted water damage no

higher than 4 inches above the floor.

     At trial, petitioner also testified:    (1) She had the water

pumped out of her basement by Mr. Davis; (2) that the walls,

carpeting, and several personal property items which were kept in

the basement were damaged or destroyed; (3) she and Mr. Davis

made a list of the damaged property as the items were removed

from the basement; and (4) that the amount of clothing damaged

was excessive because she was “decorating” the first floor of the

house and had moved most of her and her grandchild’s clothing

into the basement.

     Petitioner introduced into evidence an alleged receipt from

Mr. Davis, indicating a payment of $275 for his services in
                              - 13 -

removing water from petitioner’s basement.   Attached to the

receipt is a list of items allegedly removed from petitioner’s

basement and hauled away.   We do not find this receipt to be

credible evidence.   The receipt does not contain Mr. Davis’s

address, business, or phone number.    The receipt does not state

the date on which Mr. Davis provided his services.   In fact, the

receipt is dated August 11, 2001, even though petitioner claims

that Mr. Davis provided his services on August 2, 2001.    The

inventory list attached to the receipt is also dated August 11,

2001, even though petitioner claims Mr. Davis made the inventory

list on August 2, 2001.   The receipt and inventory list appear to

have been created for the sole purpose of substantiating

petitioner’s claimed losses in anticipation of litigation and

neither document has been authenticated by Mr. Davis.

     Petitioner had insurance at the time of the casualty.

However, petitioner testified that she did not file a claim with

her insurance company because her policy did not cover flood

damage.

     Petitioner also testified as to her calculation of her

claimed casualty loss deduction.   Petitioner calculated such

casualty loss deduction by inventorying the damaged and destroyed

carpeting and personal property items as they were “hauled away”.

She then found similar items over the Internet and used the

similar items’ purchase prices as the amount of her “cost or
                              - 14 -

other basis” in the damaged property items.   Petitioner then

totaled the fair market values of the damaged property items by

categories: clothing, tools, electronics and appliances (as shown

above).   Petitioner then “depreciated” the total amount of the

category by a percentage she felt was fair.   It appears that

petitioner had no reasoning for the amount chosen to “depreciate”

each category.   Petitioner then calculated her casualty loss by

using the sum of all the depreciated values and applying the

limitations of section 165(h).

     Petitioner did not attempt to obtain actual receipts for any

of the damaged items.   Petitioner did not call as witnesses to

substantiate the casualty loss, Mr. Davis, who allegedly helped

her pump the water out of her basement and helped her dispose of

the damaged or destroyed items of personal property, or any other

individual.

     Petitioner has presented no reliable evidence of any repairs

made to her single-family home or to the personal property items

that were damaged or destroyed as a result of the flood.

Petitioner has offered as evidence to support that she actually

sustained a casualty loss:   (1) A receipt issued by Mr. Davis

that purports to identify the items lost in the purported flood

of her basement; and (2) petitioner’s own testimony.   Petitioner

has provided as evidence to support the amount of the actual

casualty loss:   (1) Petitioner’s estimate of the cost of each
                              - 15 -

item; (2) petitioner’s estimate of the fair market value of each

item immediately prior to the purported casualty; (3) copies of

Internet catalog and web pages reflecting items petitioner claims

to have lost in the purported casualty that were collected by

petitioner in anticipation of litigation; and (4) petitioner’s

self-serving testimony.   This Court is not bound to accept a

taxpayer’s unverified and self-serving testimony.     Blodgett v.

Commissioner, 394 F.3d 1030, 1036 (8th Cir. 2005), affg. T.C.

Memo. 2003-212; Shea v. Commissioner, 112 T.C. 183, 189 (1999).

Because petitioner has failed to corroborate her testimony or

provide any substantiation to support her claimed amount of

casualty loss, we find that we cannot estimate any amounts of

petitioner’s deductions under the Cohan rule, and we sustain

respondent’s disallowance of petitioner’s claimed casualty loss

deduction in the amount of $19,068.

     We have considered all of the other arguments made by the

parties, and, to the extent that we have not specifically

addressed them, we conclude they are without merit.

     Reviewed and adopted as the report of the Small Tax Case

Division.


                                      Decision will be entered

                               for respondent.
