                        T.C. Memo. 2003-289



                     UNITED STATES TAX COURT



           CHARLES R. GODWIN, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 11382-01L, 498-02,        Filed October 14, 2003.
                 14817-02L.



     Charles R. Godwin, for petitioners.

     Linda J. Wise, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     BEGHE, Judge:   In docket Nos. 11382-01L and 14817-02L (the

section 6330 cases), petitioners primarily dispute respondent’s

assessment of additions to tax and refusal to abate interest on


     1
      Cases of the following petitioners are consolidated
herewith: Charles R. and Linda S. Godwin, docket No. 498-02 and
Linda S. Godwin, docket No. 14817-02L.
                               - 2 -

the underpayment of tax shown on their 1997 Federal income tax

return.2   In docket No. 498-02 (the deficiency case), petitioners

dispute the deficiency and addition to tax determined by

respondent in their 1997 Federal income tax.   The section 6330

cases and the deficiency case have been consolidated for trial,

briefing, and opinion.

     In the section 6330 cases, respondent assessed the

underpayment (which has since been paid) of $281,340.82 in

petitioners’ 1997 joint Federal income tax shown on their 1997

return, additions to tax of $4,464.01 under section 6654(a) for

failure to pay estimated tax, $39,331.01 under section 6651(a)(1)

for late filing, and $15,848.72 under section 6651(a)(2) for late

payment, and interest of $21,984.63.   The additions and interest

have not been paid and remain subject to respondent’s proposed

levy.

     In the deficiency case, respondent determined a deficiency

of $208,625.87 in petitioners’ 1997 joint Federal income tax

attributable to the disallowance of claimed casualty losses and

an addition of $7,752.25 under section 6651(a)(1) for late

filing.




     2
      Unless otherwise specified, all section references are to
the Internal Revenue Code in effect for the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -

     After giving effect to petitioners’ concession,3 the issues

remaining for decision are:

     1.   Whether petitioners are liable for additions to tax

under sections 6654(a) and 6651(a)(2) in the section 6330 cases,

and section 6651(a)(1) in the section 6330 cases and the

deficiency case.   We hold petitioners are liable for all those

additions;

     2.   whether petitioners are entitled to abatement of

interest on the tax liability reported on their 1997 return.    We

hold petitioners are not entitled to any interest abatement;

     3.   whether petitioners are entitled to deductions for

casualty losses on their 1997 return in excess of the amounts

allowed in the notice of deficiency.   We hold petitioners are not

entitled to any such deductions.

     For clarity and convenience, following a statement of

general findings of fact, we set forth the findings of fact and

opinion with respect to each issue under a separate heading.

General Findings of Fact

     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.   Petitioners resided in



     3
      Petitioners have conceded respondent’s upward adjustment of
the casualty loss they claimed with respect to their vacation
house located in Baldwin County, Ala., on the Gulf of Mexico.
See infra notes 8 and 9.
                               - 4 -

Atmore, Escambia County, Alabama, when they filed their

petitions.

     Petitioners have been married since December 18, 1967, and

have filed joint Federal income tax returns for all years,

including their 1997 tax year at issue in this case.    Charles R.

Godwin (petitioner) is an attorney who has been engaged in the

practice of law since May 1974.   Petitioner worked in his law

practice 12 hours per day, 6 days per week throughout 1997 and

1998.   Petitioner’s first job as an attorney was as an estate and

gift tax attorney with the Internal Revenue Service (IRS).

During the year in issue, petitioner practiced law at his office

in Atmore, Alabama.   Petitioner is admitted to practice before

this Court and is the attorney of record in these cases.   Linda

S. Godwin (Mrs. Godwin) is a teacher with the Alabama public

school system.

Issue 1.   Additions to Tax Under Sections 6654(a) and 6651(a)(1)
           and (2)

                         FINDINGS OF FACT

     Sometime during April-May 1997, petitioner received a legal

fee of “a little over a million dollars” (the $1 million fee) for

representing a client in a personal injury case.   The $1 million

fee was the largest fee petitioner had ever received.   The $1

million fee caused petitioners’ taxable income to be higher for

1997 than it has ever been before or since for tax years covered

by the record in this case.
                               - 5 -

     Apart from withholdings from Mrs. Godwin’s teacher’s salary,

petitioners did not pay estimated taxes on any of their 1997

income.   Instead, during 1997, petitioners spent “a lot” of the

$1 million fee to build their residence in Atmore, Alabama (the

Atmore residence), which had a cost basis of $989,158.

Petitioners also spent a portion of the $1 million fee to

purchase 1,068 acres of timberland in Geneva County, Alabama (the

timberland).   Petitioner visited the timberland several times in

1998, primarily for recreational purposes but also to aid his

efforts to resell a portion of the property.   Petitioners also

made charitable contributions that substantially exceeded their

contributions in prior and subsequent years.

     Petitioners resided and owned real property in counties of

Alabama affected by various natural disasters in 1997 and 1998.

On May 3 and October 24, 1997, earthquake tremors occurred in

Escambia County, Alabama (hereinafter the May earthquake and the

October earthquake and collectively the 1997 earthquakes), where

petitioners were building the house that constitutes their

principal residence.   On July 25, 1997, President Clinton

designated three Alabama counties, including Baldwin County where

petitioners own a vacation house on the Gulf of Mexico (the bay

house), as disaster areas as a result of Hurricane Danny, which

occurred in July 1997.   On September 30, 1998, President Clinton

designated 14 Alabama counties, including Baldwin and Escambia
                               - 6 -

Counties, as disaster areas as a result of Hurricane Georges,

which occurred in September 1998.

     Petitioners’ 1997 Federal income tax return was originally

due April 15, 1998.   In an August 14, 1998, letter to the IRS

Memphis Service Center (MSC), petitioners stated they had filed

timely a Form 4868, Application for Automatic Extension of Time

to File U.S. Individual Income Tax Return, to extend the time to

file their 1997 return to August 15, 1998.   In the same letter,

petitioners requested an additional 4-month extension to December

15, 1998, to file their 1997 return and pay the taxes due.

Petitioners asserted the following reasons for their request:

     1. * * * We have experienced some personnel changes in
     connection with the bookkeeping, accounting, and tax
     preparation function of our law practice. For this
     reason, we have incurred considerable delay in
     recording, documenting, compiling, classifying and
     reviewing the necessary financial data from which the
     returns could be prepared. * * *

     2. During calendar year 1997, we earned the highest
     income we have ever earned and accordingly, experienced
     the highest tax liability, the exact amount of which we
     are still in the process of determining. We need the
     additional time to prepare and file reasonable accurate
     returns and to pay the tax.

     3. Substantial earnings from 1997 were placed in real
     estate, part of which was earmarked or designated to be
     used to pay the tax liability. Several such parcels of
     real estate are listed for sale and we expect them to
     sell and generate funds for payment of tax within the
     next four (4) months.

     4. Payment of tax at this time would create an
     unreasonable hardship and borrowing would create
     extraordinary expenses which would impair the cash flow
     in the operation of the law practice.
                              - 7 -

     5. * * * The year to year fluctuations in our income
     and expenses have necessitated requests for extensions
     of time to file and pay tax in the past. We have
     always fulfilled our responsibility in this regard with
     your kind assistance and cooperation. We fully intend
     to maintain and pursue that excellent working
     relationship.

     In a September 15, 1998, letter, MSC informed petitioners it

could not grant their request for the additional extension

because it had no record of having granted petitioners an

original 4-month extension of time for filing.   MSC also

requested a copy of the Form 4868 petitioners claimed they had

filed.

     On October 6, 1998, the IRS issued a news release (the news

release) applicable to taxpayers residing in Escambia County

affected by Hurricane Georges that stated:   “most tax returns and

payments that normally would be due on October 15 will not be due

until November 16.”

     By letter dated November 16, 1998, petitioners provided MSC

a copy of an April 15, 1998, letter in which they confirmed

mailing a Form 4868 as an extension of time “to file the federal

income tax return Form 1040 and to pay the tax due.”   The Form

4868 allegedly mailed on April 15, 1998, reported the following

regarding petitioners’ 1997 tax liability:
                               - 8 -

Part II Individual Taxes
     4 Total tax liability for 1997                $ unknown
     5 Total 1997 payments                           5,013.80
     6 Balance. Subtract 5 from 4                    unknown
Part III Gift/GFT Tax [No entries]
Part IV Total
     9 Total liability. Add lines 6,7, and 8       $ unknown
     10 Amount you are paying                          0.00

Petitioners did not pay any Federal income tax when they filed

Form 4868.   In the November 16, 1998, letter, petitioners

asserted the following additional reasons for their request for

extension of time to December 15, 1998, to file their 1997 return

and pay the tax due:

     1. The extraordinary events which occurred during the
     calendar year 1997 and subsequently. These included
     very high income, investment in real estate which we
     intended to sell to pay taxes and which did not sell in
     the manner, for the price and within time we had
     anticipated.

     2. The preparation of the return required
     consideration of the casualty loss of our bay house
     near Fort Morgan as a result of Hurricane Danny in
     July, 1997. Additionally, we suffered substantial
     damages to our home here in Atmore, Alabama and less
     severe damages to our law office here as a result of
     Hurricane Georges during the latter part of September,
     1998. The aftermath of damage to our home, the
     necessary repair of which was not all covered by
     insurance, the electrical power outages at our office
     and at home frustrated our good faith efforts to file
     the return and pay the tax.

     3. We have additional personnel changes since August
     14, 1998, including the bookkeeper who was assisting
     with our tax records in the preparation of the return.

     4. The law practice income which is our primary source
     of income for 1998 has not reached the level of income
                                - 9 -

     necessary to promptly pay the taxes as it had done in
     years past. This is primarily because the 1997 law
     practice income was extraordinarily high, followed by
     comparatively much lower income in 1998.

     5. We are now negotiating a loan at various lending
     institutions for the purpose of paying the tax.

     On December 21, 1998, MSC received petitioners’ 1997 tax

return.    On their 1997 return, petitioners reported net profit of

$1,458,835.02 from petitioner’s law practice.      On their 1997

return, petitioners deducted $526,833 for casualty losses

resulting from Hurricane Danny, the 1997 earthquakes, and

Hurricane Georges.    On their 1997 return, petitioners reported

cash gifts to charity of $285,010, substantially exceeding their

total charitable contributions for the 3 immediately preceding

years.    On their 1997 return, petitioners reported total tax

liability of $291,340.82 for 1997.      Petitioners made a $10,000

payment by check with their 1997 return, leaving unpaid the

remaining $281,340.82 tax liability shown thereon.

     Petitioners, in the cover letter dated December 14, 1998,

with which they filed their 1997 return, requested an extension

of time to pay the tax for a reasonable time from the date of

filing the return, for reasons substantially similar to those

asserted in their letters of August 14 and November 16, 1998.

     Respondent assessed the unpaid tax liability reported on

petitioners’ 1997 return and accrued interest and additions to
                              - 10 -

tax under section 6654(a) for failing to pay estimated taxes,

section 6651(a)(1) for late filing of their 1997 return, and

section 6651(a)(2) for late payment of their tax liability.

     On October 24, 1999, respondent sent petitioners a Final

Notice--Notice of Intent to Levy and Notice of Your Right to a

Hearing with respect to their unpaid 1997 income tax liability,

additions to tax, and interest.   By letter dated November 4,

1999, petitioner sent respondent a Form 12153, Request for a

Collection Due Process Hearing.

     By November 24, 1999, during the pendency of petitioners’

section 6330 hearing, petitioners had paid the remaining balance

of the unpaid 1997 income tax liability shown on their return;

however, the record does not contain the exact date or dates of

petitioners’ payments.   At the hearing, petitioners contested

their liability for unpaid additions to tax and interest.

Petitioners did not raise any collection issues other than that

they had tried to compromise the entire liability for tax,

additions, and interest with an offer to pay $100,000.   The

Appeals officer at the hearing upheld the assessment of the

additions and accrued interest and sustained respondent’s levy.

     On August 7, 2001, respondent sent petitioner by certified

mail a notice of determination under section 6330.   On August 15,

2002, respondent sent petitioner by certified mail a supplemental

notice of determination under section 6330.   On August 15, 2002,
                             - 11 -

respondent sent Mrs. Godwin by certified mail a notice of

determination under section 6330 (the Linda Godwin notice).   In

the section 6330 cases, petitioner filed a petition for

redetermination on September 10, 2001, and both petitioners filed

a petition for redetermination on September 13, 2002.4

     On November 9, 2001, respondent sent petitioners by

certified mail a notice of deficiency for their 1997 tax year for

a deficiency attributable to the disallowance of claimed casualty

losses from the 1997 earthquakes, Hurricane Danny, and Hurricane

Georges and for a section 6651(a)(1) addition to tax.    On January

7, 2002, petitioners filed a joint petition for redetermination

in the deficiency case.

     The section 6654(a) and 6651(a)(1) and (2) additions to tax

in the section 6330 cases and the section 6651(a)(1) addition to

tax in the deficiency case are now in dispute.

                             OPINION

     Our ultimate finding, notwithstanding the natural disasters

and the changes in clerical and bookkeeping personnel at

petitioner’s law office, is that petitioners did not exercise due



     4
      Respondent moved to dismiss for lack of jurisdiction as to
Mrs. Godwin under docket No. 11382-01L because of issues
regarding petitioner’s authority to represent her. We granted
respondent’s motion, which was thereafter rendered moot by
petitioner’s admission to practice before this Court, and
respondent’s sending Mrs. Godwin a notice of determination under
sec. 6330, in response to which petitioner filed a petition with
the Court on behalf of Mrs. Godwin in docket No. 14817-02L.
                               - 12 -

care to set aside otherwise available liquid funds to pay

estimated tax during 1997 and 1998 or to pay their 1997 Federal

income tax liability on time in 1998.     They disabled themselves

from so doing by using the proceeds of the $1 million fee to

invest in timberland, pour funds into building their new house,

and substantially increase their charitable contributions, rather

than set aside some portion of the fee in readily accessible

Treasury bills, certificates of deposit, or other money-market

obligations.

     After making some preliminary observations about judicial

review, burden of proof, and respondent’s extensions of time to

file and pay, we hold petitioners are liable for the section

6654(a) and 6651(a)(2) additions to tax for late payments and the

section 6651(a)(1) addition to tax for late filing.     We also

sustain respondent’s levy, rejecting petitioners’ claim that the

Appeals officer abused his discretion.

     The amounts of some of the additions to tax set forth in

respondent’s trial memorandum appear facially incorrect and do

not correspond to the amounts set forth in the October 24, 1999,

notice of intent to levy.   Petitioners did not object to the

absence from the record of Form 4340, Certificate of Assessment,

or request inclusion of that form in the record to verify the

validity of the assessments.   See secs. 6330(c)(1), 6203; sec.

301.6203-1, Proced. & Admin. Regs.      Respondent conceded on brief
                                - 13 -

that Rule 155 computations would be necessary.    We will therefore

order Rule 155 computations in both the section 6330 cases and

the deficiency case.    See Sponberg v. Commissioner, T.C. Memo.

2002-177.

1.   Judicial Review and Burden of Proof

     If the taxpayers in a section 6330 case did not receive a

notice of deficiency or otherwise have an opportunity to dispute

the tax liability, the Court reviews the underlying tax liability

de novo; the Court reviews for abuse of discretion the

administrative determination of the IRS Appeals Office to collect

the tax liability.     Sego v. Commissioner, 114 T.C. 604, 610

(2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

      We review de novo respondent’s determinations that

petitioners are liable for the section 6654(a) and 6651(a)(1) and

(2) additions to tax.    See Downing v. Commissioner, 118 T.C. 22,

29 (2002); Joye v. Commissioner, T.C. Memo. 2002-14.     If we

should find petitioners are liable for those additions to tax, we

would review for abuse of discretion respondent’s determinations

to proceed to collect those additions.     See Downing v.

Commissioner, supra; Joye v. Commissioner, supra.

     Respondent concedes, under section 7491(c), that he bears

the burden of production of coming forward with sufficient

evidence that the additions to tax are appropriate.    See Higbee

v. Commissioner, 116 T.C. 438, 446-447 (2001); cf. Joye v.
                              - 14 -

Commissioner, supra (where we accepted such a concession without

deciding whether section 7491(c) applies in a section 6330

proceeding).   On the record before us, we find respondent has met

the burden of production by coming forward with sufficient

evidence indicating that it is appropriate to impose on

petitioners those additions to tax.    Petitioners bear the burden

of proving “reasonable cause” under section 6651(a).      See Higbee

v. Commissioner, supra; Joye v. Commissioner, supra.

2.   Jurisdiction in the Section 6330 Cases5

      The Court has jurisdiction to review lien and levy

determinations under section 6330 if we generally have

jurisdiction over the underlying tax liability.    Sec.

6330(d)(1)(A); Van Es v. Commissioner, 115 T.C. 324, 327 (2000);

Moore v. Commissioner, 114 T.C. 171, 175 (2000).    The Court

generally has jurisdiction over income, gift, and estate tax

cases for purposes of section 6330(d)(1)(A) because the Court has

deficiency jurisdiction over such cases.   See secs. 6211(a),

6213(a), 6214(a); Downing v. Commissioner, supra at 26-27; Landry

v. Commissioner, 116 T.C. 60, 62 (2001); Katz v. Commissioner,

115 T.C. 329, 339 (2000); Van Es v. Commissioner, supra at 328;

Goza v. Commissioner, supra at 182.    Just as we have jurisdiction



      5
      Neither party contends we lack jurisdiction. However, the
Court may consider sua sponte whether it has jurisdiction.
Moorhous v. Commissioner, 116 T.C. 263, 272 (2001); Neely v.
Commissioner, 115 T.C. 287, 290 (2000).
                               - 15 -

to decide income, gift, and estate tax cases, we generally have

jurisdiction over additions to tax for failure to pay those taxes

for purposes of section 6330(d)(1)(A).    See sec. 6214(a); Downing

v. Commissioner, supra.

       Respondent assessed the underpayment of income tax (which

has since been paid) shown on petitioners’ 1997 return, as well

as the additions to tax under sections 6654(a) and 6651(a)(1) and

(2) with respect to the delays in payment of the tax.    We have

jurisdiction to review respondent’s determinations under section

6330 with respect to petitioners’ liability for the additions to

tax.

3.   Extensions of Time To File and Pay

       Although MSC originally claimed never to have received a

Form 4868 from petitioners for 1997, respondent conceded in the

notice of deficiency that petitioners did file a Form 4868, and

that the IRS approved petitioners’ request for an additional

extension of time to file their return by October 15, 1998.

Respondent did not approve petitioners’ request for an extension

of time to pay their tax liability.

       The news release stated that most tax returns and payments

“normally” due on October 15, 1998, from taxpayers residing in

Alabama counties affected by Hurricane Georges would not be due

until November 16, 1998.    Respondent claims the news release did

not apply to petitioners because their 1997 tax liability and
                                 - 16 -

return were not “normally” due on October 15, 1998, but instead

on April 15, 1998.     However, respondent concedes that the news

release may have confused petitioners and for that reason

concedes petitioners have reasonable cause under section

6651(a)(1) and (2) for failing to file and pay for the period

October 15 to November 16, 1998.

     Respondent assessed the section 6651(a)(1) addition to tax

for late filing for the period November 17 through December 21,

1998.     Respondent did not assess the section 6651(a)(2) addition

to tax for late payment from October 15 to November 16, 1998;

instead, respondent assessed the late payment addition for the

period April 16 through October 15, 1998, and the period November

17, 1998, to the date of payment by petitioners.

4.   Late Payment of Tax

        a.   Failure To Pay Estimated Tax

        Petitioners first failed to satisfy their tax obligations by

failing to pay any 1997 estimated tax as required by section

6654(a).      Petitioners argue in their brief, without explanation,

that respondent should have exercised his authority to waive the

section 6654(a) addition to tax because this is a case where, by

reason of a casualty or disaster, the imposition of that addition

to tax would be against equity and good conscience.     See sec.

6654(e)(3)(A).
                              - 17 -

     Petitioners conceded the issue of liability under section

6654(a) because they did not raise the issue in their petition.

See Rule 331(b)(4); Goza v. Commissioner, 114 T.C. at 183.

     Even if petitioners had properly raised this issue in their

petition, we would hold it would not be inequitable or

unconscionable to impose the estimated tax addition on them.

Petitioners did not provide any reason for their failure to pay

estimated taxes.   Rather than paying estimated taxes, petitioners

used $989,158 of petitioner’s law practice net profit to pay for

construction of their house in Escambia County.   Petitioners

invested another portion of the law practice net profit in

timberland, a highly illiquid investment.   Having earned a net

profit from petitioner’s law practice that was more than four

times the amount of the tax liability shown on their return,

petitioners had more than enough money to pay estimated taxes and

still have funds left over for investments and personal outlays.

Moreover, petitioners did not establish any causal link between

the natural disasters and failure to pay estimated tax, such as

damage or loss of their business records that adversely affected

their ability to estimate their tax liability.

     b. Failure To Pay Tax With the Request for
     Automatic 4-Month Extension

     Petitioners did not pay any tax, either when they filed

their Form 4868 on April 15, 1998, or when they requested a
                                - 18 -

 further extension on August 14, 1998.   The due date for payment

of petitioners’ 1997 Federal income tax was April 15, 1998, the

original due date for filing their 1997 return.   See sec.

6151(a).   For failure to pay taxes shown on a return on or before

the due date for payment (determined with regard to any extension

of time for payment), there shall be added 0.5 percent of the

amount of such tax if the failure is for not more than 1 month,

with an additional 0.5 percent for each additional month or

fraction thereof during which such failure continues, not

exceeding 25 percent in the aggregate.   Sec. 6651(a)(2).

     In their April 15, 1998, letter, petitioners characterize

their filing of Form 4868 as an extension of time to file and “to

pay the tax due”.   The granting by the IRS of an automatic

extension of time to file a return does not operate to extend the

time for payment of any tax shown due on the return.   See sec.

1.6081-4(b), Income Tax Regs.

     Petitioners did not properly file a separate request for an

extension of time to pay their taxes, which must be made on Form

1127, Application for Extension of Time for Payment of Tax.   Nor

did they pay their tax liability when they filed their Form 4868.

As a result, petitioners’ liability for the section 6651(a)(2)

addition to tax began to accrue on April 16, 1998.
                              - 19 -

     c.   Failure To Pay Tax Shown on 1997 Return

     Petitioners did not complete making payments of the tax

liability shown on their 1997 return until November 24, 1999,

approximately 11 months after they had filed their return late.

      The section 6651(a)(2) addition to tax for failure to pay

on time does not apply if the taxpayer can demonstrate that the

failure is due to “reasonable cause” and not willful neglect.

      Petitioners may demonstrate reasonable cause for failure to

pay taxes by showing they exercised ordinary business care and

prudence in providing for payment of their tax liability and were

nevertheless either unable to pay the tax or would suffer an

undue hardship (as described in section 1.6161-1(b), Income Tax

Regs.) if they paid on the due date.   Sec. 301.6651-1(c), Proced.

& Admin. Regs.   Section 1.6161-1(b), Income Tax Regs., defines

“undue hardship” as:

     more than an inconvenience to the taxpayer. It must
     appear that substantial financial loss, for example,
     loss due to the sale of property at a sacrifice price,
     will result to the taxpayer from making payment on the
     due date of the amount with respect to which the
     extension is desired. If a market exists, the sale of
     property at the current market price is not ordinarily
     considered as resulting in an undue hardship.

     Penalties or additions can be avoided if reasonable efforts

were made to conserve funds in marketable form to provide for the

expected tax liability, but not if “lavish” and excessive living

expenses deplete the taxpayer’s funds.   Sec. 301.6651-1(c)(1),
                               - 20 -

Proced. & Admin Regs.    A taxpayer who has invested funds in

illiquid or speculative assets has not exercised ordinary

business care and prudence unless, at the time of the investment,

(1) the remainder of his assets and estimated income will be

sufficient to pay the tax, or (2) it reasonably can be foreseen

that the investment can be used to realize sufficient funds to

satisfy the tax liability.    Id.

     Petitioners argue they had reasonable cause for failing to

pay on time because they did not have the financial ability to

pay the taxes on time.    We reject petitioners’ argument.

     The 1997 net profit from petitioner’s law practice was more

than four times the tax liability shown on petitioners’ return.

Petitioners had much more than enough money in 1997 to pay their

tax liability when it was going to fall due on April 15, 1998.

     Petitioners did not invest enough of the 1997 law practice

net profit in marketable form such as CDs or a savings account to

preserve the liquidity needed to pay the tax liability on time.

Any hardship petitioners would have encountered from a forced

sale of their property would have been of their own making

because they used most of the law practice net profit to pay for

the Atmore residence, to invest in illiquid timberland, and to

more than triple their previous 3 years’ charitable

contributions.   They did all this over a period when they could

have instead estimated the order of magnitude of their 1997 tax
                                - 21 -

liability and made arrangements to pay their approximate 1997 tax

liability when it fell due.

     Petitioners argue that petitioner’s law practice net profits

in later years were not high enough to pay their unusually high

tax liability for 1997.   This argument is a nonstarter.

Petitioners should have set aside in liquid form sufficient

proceeds of their high income for 1997 to enable them to use

those proceeds to pay the tax for that year.

     In failing to provide for payment of their tax liability,

petitioners did not exercise ordinary care and prudence; they did

not show they would have suffered an undue hardship if they paid

on the due date because they prevented themselves from doing so.

Petitioners did not have reasonable cause for failing to pay

their 1997 income tax timely.     Petitioners are liable for the

addition to tax under section 6651(a)(2) in the section 6330

cases for the period April 15 to October 15, 1998, and November

17, 1998, to the date or dates of payment up to the maximum

statutory amount.

5.   Late Filing of 1997 Return

      a. Section 6651(a)(1) Addition to Tax in the
      Section 6330 Cases

      For failure to file a Federal income tax return by its due

date, including valid extensions, there shall be added to the

amount required to be shown as tax on such return 5 percent of

the amount of such tax if the failure is for not more than 1
                              - 22 -

month, with an additional 5 percent for each additional month or

fraction thereof during which such failure continues, not

exceeding 25 percent in the aggregate.    Sec. 6651(a)(1).   The

section 6651(a)(1) addition to tax is reduced by the amount of

the section 6651(a)(2) addition for any month (or fraction

thereof) to which an addition to tax under section 6651(a)(1) and

(2) applies.   Sec. 6651(c)(1).   In order to avoid the section

6651(a)(1) addition to tax, petitioners must show both reasonable

cause and a lack of willful neglect.    Sec. 6651(a(1); United

States v. Boyle, 469 U.S. 241 (1985).    Their failure to file is

due to reasonable cause if petitioners exercised ordinary

business care and prudence and were, nevertheless, unable to file

their return within the time prescribed by law.    United States v.

Boyle, supra at 246; sec. 301.6651-1(c)(1), Proced. & Admin.

Regs.

     Respondent assessed the section 6651(a)(1) addition to tax

for the period November 17 through December 21, 1998.

Petitioners make several arguments that they had reasonable cause

for late filing of their 1997 return.    We reject them all.

     First, petitioners argue casualties to their home and

office, including power outages and flooded roads, adversely

affected their ability to file.    A taxpayer’s selective inability

to perform his or her tax obligations, while performing his

regular business and personal activities, does not excuse failure
                               - 23 -

to file.    See Watts v. Commissioner, T.C. Memo. 1999-416;

Kemmerer v. Commissioner, T.C. Memo. 1993-394; Bear v.

Commissioner, T.C. Memo. 1992-690, affd. without published

opinion 19 F.3d 26 (9th Cir. 1994).     The natural disasters did

not preclude petitioner from having time to work in his law

practice 12 hours per day, 6 days per week throughout 1997 and

1998, to engage in real estate transactions in 1998, and to

travel to visit the timberland several times in 1998.     Moreover,

petitioners did not establish any causal link between the natural

disasters and the late filing, such as damage or loss of their

business records that precluded them from filing on time.

Respondent conceded petitioners an extension of time to file

until November 16, 1998.   Petitioners had more than enough time

to complete and file their 1997 return no later than November 16,

1998.

     Second, replacement of petitioners’ accountant is not

“reasonable cause” to excuse their late filing.     See United

States v. Boyle, supra at 252.

     Third, petitioners argue their 1997 return was filed timely

under section 165(i), which provides that any loss attributable

to a Presidentially declared natural disaster may, at the

election of the taxpayer, be taken into account for the taxable

year immediately preceding the taxable year in which the disaster

occurred.    If such an election is made, the casualty resulting in
                              - 24 -

the loss is treated as having occurred in the taxable year for

which the deduction is claimed.   Sec. 165(i)(2).

     Petitioners had until the due date of their 1998 return,

April 15, 1999, to elect to take into account 1998 casualty

losses from Hurricane Georges on their 1997 return.     Sec. 165(i);

sec. 1.165-11(e), Income Tax Regs.     Section 165(i) allows

petitioners either to amend their 1997 return or claim a refund

of taxes from their 1997 tax year.     Neither section 165(i) nor

any other Code provision allows petitioners to file their 1997

return later than April 15, 1998, the due date.

     Finally, petitioners argue that section 7508A, which

authorizes the IRS to postpone any deadline under Federal tax

laws for taxpayers affected by a Presidentially declared

disaster, creates a presumption of reasonable cause under section

6651(a)(1) and (2).   Section 7508A provides no general

presumption of reasonable cause for late filing or late payment.

     Petitioners did not have reasonable cause for failing to

file their 1997 return by November 16, 1998.     Petitioners are

liable for the addition to tax under section 6651(a)(1) in the

section 6330 cases for the period November 17 through December

21, 1998, up to the maximum statutory amount.     Respondent’s

assessment shall be reduced by the amount of the section

6651(a)(2) addition for any month (or fraction thereof) to which

an addition to tax under section 6651(a)(1) and (2) applies.
                              - 25 -

     b. Section 6651(a)(1) Addition to Tax in the
     Deficiency Case

     For the reasons described supra (Issue 1.B.5.a.), with

respect to the section 6651(a)(1) late filing addition to tax in

the section 6330 cases, petitioners are liable for the addition

to tax under section 6651(a)(1) in the deficiency case up to the

maximum statutory amount.

6.   No Abuse of Discretion in Sustaining Levy

     Petitioners argue the Appeals officer abused his discretion

in sustaining respondent’s levy because:   (1) The Appeals officer

did not consider that the collection of tax would not be in

jeopardy, given petitioners’ ownership of substantial assets and

income-earning potential with which to pay their tax liabilities;

(2) IRS agents repeatedly declined to inspect petitioners’ real

property damaged by natural disasters in 1997 and 1998; and (3)

respondent never replied to petitioners’ good-faith efforts to

negotiate reasonable collection alternatives, including

petitioners’ offer in compromise.

     Respondent filed a motion to strike portions of petitioners’

reply brief relating to the issue of abuse of discretion because

that issue was not raised in the petition.

     Petitioners conceded the issue of abuse of discretion

because the petitions filed with the Court do not assert (nor is

there any basis in the administrative record for the Court to

conclude) that the Appeals officer abused his discretion with
                                - 26 -

respect to the intended collection action or possible alternative

means of collection.   See Rule 331(b)(4); Goza v. Commissioner,

114 T.C. at 183.   Even if petitioners had not conceded this

issue, petitioners’ factual allegations and arguments would not

establish that the Appeals officer abused his discretion in

sustaining respondent’s levy.

     We shall not consider an August 8, 2002, letter (the

settlement letter) attached to petitioners’ reply brief in which

petitioners offered to settle all tax, interest, and penalties

for $100,000 to be paid within 90 days of acceptance of their

offer; that letter was never properly introduced into evidence,

as required by Rule 143.    See also Kronish v. Commissioner, 90

T.C. 684, 695-696 (1988).

     Even if the settlement letter had been properly introduced,

we would not consider it a valid offer in compromise.   Taxpayers

who wish to propose an offer in compromise must submit a Form

656, Offer in Compromise, which requests financial information

from the taxpayer so that the IRS can determine whether the offer

should be accepted.    See sec. 7122(c); see also 2 Administration,

Internal Revenue Manual (CCH), sec. 5.8.1.3(a).

     Petitioners’ offer was invalid because they did not submit a

Form 656 or otherwise describe their income, assets, and other

financial information required by Form 656 in order for

respondent to evaluate whether the offer should be accepted.
                               - 27 -

Instead petitioners attempted to settle their entire liability

for $100,000 without providing any facts to support their claimed

inability to pay the full tax liability, without any factual

assertions or legal argument that they were not liable for the

full tax liability, and without any legal basis for respondent’s

acceptance of such an offer.   A decision by respondent’s agents

not to process petitioners’ offer in compromise would have been a

reasonable exercise of respondent’s discretion.

     In the absence of a justiciable claim for relief in the

petitions for review of respondent’s proposed collection action,

we grant respondent’s motion to strike portions of petitioners’

reply brief on the issue of abuse of discretion.

Issue 2.   Abatement of Interest

                         FINDINGS OF FACT

     In the section 6330 cases, respondent assessed interest of

$21,984.63 accrued on the tax liability reported on petitioners’

1997 return.   In the Linda Godwin notice, respondent stated that

abatement of interest is not granted.    The amount of interest is

not contested.

                               OPINION

     Petitioners argue that interest on late-paid tax reported on

their 1997 return should be abated because they resided in a

Presidentially declared disaster area in 1997 and 1998.
                              - 28 -

     Section 6404(h)(1), as amended (current section

6404(h)(1)),6 provides:

     The Tax Court shall have jurisdiction over any action
     brought by a taxpayer who meets the requirements
     referred to in section 7430(c)(4)(A)(ii) to determine
     whether the Secretary’s failure to abate interest under
     this section was an abuse of discretion, and may order
     an abatement, if such action is brought within 180 days
     after the date of the mailing of the Secretary’s final
     determination not to abate such interest.

See also Woodral v. Commissioner, 112 T.C. 19, 22-23 (1999).

     We lack jurisdiction over petitioners’ interest abatement

request.   The older version of section 6404(h)(1) (old section

6404(h)(1)),7 provided:

     If the Secretary extends for any period the time for
     filing income tax returns under section 6081 and the
     time for paying income tax with respect to such returns
     under section 6161 for any taxpayer located in a
     Presidentially declared disaster area, the Secretary
     shall abate for such period the assessment of any
     interest prescribed under section 6601 on such income
     tax.

The old section 6404(h)(1) applied to disasters declared after

December 31, 1997, with respect to tax years beginning after

December 31, 1997.   See Internal Revenue Service Restructuring



     6
      The Victims of Terrorism Tax Relief Act of 2001 (VTTRA),
Pub. L. 107-134, sec. 112(d)(1)(B), 115 Stat. 2435 (2002),
amended sec. 6404 by deleting subsec. (h) and redesignating
subsec. (i) as subsec. (h).
     7
      Sec. 6404(h) dealing with abatement of interest for
Presidentially declared disasters was deleted by VTTRA sec.
112(d)(1)(A), 115 Stat. 2434. The interest abatement provision
is now included in sec. 7508A.
                               - 29 -

and Reform Act of 1998, Pub. L. 105-206, sec. 3309(b), 112 Stat. 745.

     The old section 6404(h)(1) was not in effect in 1997 when

the President declared Hurricane Danny a disaster.     Because

petitioners elected to claim losses from Hurricane Georges on

their 1997 return, the casualty from Hurricane Georges is treated

as having occurred in 1997.    See sec. 165(i)(2).   Although

Hurricane Georges was a Presidentially declared disaster in 1998,

the old section 6404(h)(1) does not apply to petitioners’ 1997

tax year at issue, which began before January 1, 1998.     The

current section 6404(h)(1) grants the Court jurisdiction to

review the Commissioner’s failure to abate interest only under

subsections of section 6404.    Because the old section 6404(h)(1)

was not in effect during petitioners’ tax year at issue, the

Court lacks jurisdiction to review petitioners’ claim for

abatement of interest.

     We are unable to grant petitioners any abatement of interest

on their 1997 tax liability.

Issue 3.   Casualty Losses

     Background

     On Schedule A, Itemized Deductions, of their 1997 return,

petitioners deducted total casualty losses of $526,833 assertedly
                               - 30 -

caused by Hurricane Danny,8 the 1997 earthquakes, and Hurricane

Georges.9    Respondent examined petitioners’ 1997 return and made

adjustments.    Casualty losses to the bay house are not at issue.

     The casualty losses claimed by petitioners and respondent’s

adjustments are as follows:

Natural                   Property        Claimed     Allowed by
Disaster       Date       Affected         Loss       Respondent

Hurricane  7/19/97     Bay house          $22,943        - 0 -
  Danny
Earthquake 5/3/97      Atmore residence   300,000        - 0 -
  tremors 10/24/97
Hurricane  9/30/98     Atmore residence   211,504        - 0 -
  Georges              Bay house           50,000       $80,000
                       Beach lot           92,000        - 0 -

     Total                                 676,447       80,000

     Total after $100 limit for
       each casualty                      676,147        79,900

     Total after 10 percent adjusted
       gross income (AGI) limit
       (AGI = $1,493,138)                 526,833        - 0 -


     8
      On their 1997 return, petitioners claimed a casualty loss
of $22,943 for damages to their bay house from Hurricane Danny.
Respondent determined petitioners failed to establish any loss in
excess of their insurance reimbursement.   Petitioners conceded
respondent’s adjustment in their opening statement at trial.
     9
      On their 1997 return, petitioners claimed a loss of $50,000
for damages caused by Hurricane Georges to a wharf and bulkhead
at their bay house. In the notice of deficiency, respondent
determined petitioners were entitled to a loss of $80,000 for
damages to their bay house. Petitioners do not contest this
determination. Petitioners are not entitled to deduct the
casualty loss of $80,000 because it does not exceed $149,314, 10
percent of petitioners’ 1997 adjusted gross income, as provided
by sec. 165(h).
                              - 31 -

                         FINDINGS OF FACT

1.   Atmore Residence

     Both 1997 earthquakes occurred in Escambia County, Alabama;

the May 3, 1997, earthquake registered 3.1 on the Richter scale,

and the October 24, 1997, earthquake registered 4.9 on the

Richter scale.   During the period September 21-30, 1998,

Hurricane Georges caused damage in the Caribbean region and

across the southern Gulf States of the United States and produced

13.5 inches of rainfall and wind gusts up to 85 miles per hour in

Alabama.

     On their 1997 return, petitioners claimed a casualty loss of

$300,000 for reduction in the fair market value of the Atmore

residence.   Petitioners claim the 1997 earthquakes caused a crack

or cracks on the ground floor on opposite sides of the house that

are less than one-thirty-second of an inch in width; the crack or

cracks are in the limestone tile floor of the family room on the

west side of the house and the granite tile floor of the master

bathroom on the east side of the house.10   Petitioners have never

inspected the floors underneath the carpets in rooms between the

family room and master bathroom to determine whether the crack or

cracks run continuously through the ground floor of the Atmore




     10
      It is not clear from the record whether there is one
continuous crack running through the ground floor of the Atmore
residence or more than one crack in different rooms of the house.
                              - 32 -

residence.   Photographs of the crack or cracks on the floors in

the family room and the master bathroom are in evidence.

     The Atmore residence was under construction in 1997.   The

Atmore residence was insured for earthquake damage from January

15, 1998, to January 15, 1999, but was not insured for such

damage during the period of construction in 1997.

     The foundation of the Atmore residence had been completed

and was covered with sawdust and construction materials so that

any crack or damage to the foundation would not have been

noticeable to petitioners if they had made an inspection

immediately after the May earthquake.    The Atmore residence was

complete as of the October earthquake.   Petitioners observed the

crack or cracks after moving into the Atmore residence in early

1998.   Petitioner made his own estimate of the decrease in fair

market value of the Atmore residence after the 1997 earthquakes.

The Court held the record open for 30 days following the trial to

allow petitioner to introduce into evidence an Escambia County

Tax Assessor’s appraisal (the assessor’s appraisal) in

petitioners’ possession that petitioner claimed was consistent

with his estimate of the reduction in the fair market value of

the Atmore residence.   Petitioners did not introduce the

assessor’s appraisal into evidence.

     Petitioners made a timely election under section 165(i) to

make a claim on their 1997 return for a casualty loss in value of
                               - 33 -

the Atmore residence as a result of Hurricane Georges.   On their

1997 return, petitioners claimed a casualty loss of $211,504 for

reduction in the fair market value of the Atmore residence as a

result of water damage to the exterior brick and the wooden frame

in the gables of the Atmore residence (the brick damage) caused

by Hurricane Georges.   Petitioners also claimed a loss in the

architectural value of the Atmore residence as a result of having

to cover the exterior brick with vinyl siding in order to prevent

future water damage to the exterior brick.   Although there is no

evidence in the record of the exact cost of the vinyl siding,

according to petitioner, the cost was “not very high”.

Photographs of the vinyl siding and the brick damage are in

evidence.   Petitioners reported an insurance reimbursement of

$2,654 for damages as a result of Hurricane Georges.   Petitioner

was not sure whether the insurance company paid any amount

towards repairing the brick damage or installing the vinyl

siding.

2.   Beach Lot

      Petitioners made a timely election under section 165(i) on

their 1997 return to claim a casualty loss from beach erosion of

their undeveloped beach lot in Baldwin County, Alabama, on the

Gulf of Mexico (the beach lot) as a result of Hurricane Georges.

Petitioners claimed a loss of the full amount of their $92,000

cost basis in the beach lot.   Photographs of the beach and the
                                - 34 -

claimed erosion are in evidence.    Respondent disallowed

petitioners’ claimed loss in full.

      Removal of sand on petitioners’ beach lot revealed the ribs

of a wrecked vessel on the property several yards from the

water’s edge (the wreck).   The wreck was covered by sand before

Hurricane Georges and was almost fully visible for a period of

time after Hurricane Georges.    The remains of the wreck included

rusted debris.

      Petitioner did not recover sand from areas where it was

deposited by the storm as other property owners in the vicinity

had done and as he was permitted to do.    The wreck has since been

covered by sand and the beach replenished by ocean tides and a

beach replenishment program of the City of Gulf Shores, Alabama.

      Baldwin County changed the coastal construction setback line

after Hurricane Georges, thereby limiting the area on the beach

lot available for future construction of a new beach house.

                                OPINION

1.   Burden of Proof

      Petitioners generally bear the burden of proving their

entitlement to deductions for casualty losses.    Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

      Section 7491(a), which applies to examinations commenced

after July 22, 1998, places the burden of proof on the

Commissioner with regard to certain factual issues.    The
                               - 35 -

examination in the instant case commenced after July 22, 1998;

accordingly, we consider whether respondent bears the burden of

proof under section 7491(a).

     Section 7491(a)(1) provides that if, in any court

proceeding, the taxpayer introduces credible evidence with

respect to factual issues relevant to ascertaining the taxpayer’s

liability for a tax, the Commissioner will have the burden of

proof with respect to such factual issues.   The taxpayer must

also comply with substantiation and record-keeping requirements

and must cooperate with reasonable requests by the Commissioner

for “witnesses, information, documents, meetings, and

interviews”.   See sec. 7491(a)(2)(A) and (B).

     The statute does not expressly provide what constitutes

credible evidence.   The conference committee’s report states:

     Credible evidence is the quality of evidence which,
     after critical analysis, the court would find
     sufficient upon which to base a decision on the issue
     if no contrary evidence were submitted (without regard
     to the judicial presumption of IRS correctness). A
     taxpayer has not produced credible evidence for these
     purposes if the taxpayer merely makes implausible
     factual assertions, frivolous claims, or tax
     protestor-type arguments. The introduction of evidence
     will not meet this standard if the court is not
     convinced that it is worthy of belief. If after
     evidence from both sides, the court believes that the
     evidence is equally balanced, the court shall find that
     the Secretary has not sustained his burden of proof.
     [H. Conf. Rept. 105-599, at 240-241 (1998), 1998-3 C.B.
     747, 994-995.]

See also Higbee v. Commissioner, 116 T.C. 438, 447 (2001).
                                - 36 -

     Petitioners failed to introduce sufficiently credible

evidence as to the requisite elements of a casualty loss

deduction to shift the burden of proof to respondent.

2.   Applicable Law

      Section 165(a) and (c)(3) allows an individual a deduction

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

transaction entered into for profit if the loss arises from fire,

storm, shipwreck, or other casualty and was not compensated for

by insurance or otherwise.   “Other casualty” is defined as a loss

proximately caused by a sudden, unexpected, or unusual event,

excluding the progressive deterioration of property through a

steadily operating cause or by normal depreciation.     Maher v.

Commissioner, 680 F.2d 91, 92 (11th Cir. 1982), affg. 76 T.C. 593

(1981); Coleman v. Commissioner, 76 T.C. 580, 589 (1981).    There

must be a causal connection between the alleged casualty and the

loss claimed by the taxpayer.    Kemper v. Commissioner, 30 T.C.

546, 549-50 (1958), affd. 269 F.2d 184 (8th Cir. 1959).    The

casualty loss must be permanent and not merely temporary damage

or interruption in the use of the property.    Bidelspacher v.

Commissioner, T.C. Memo. 1980-538, affd. without published

opinion 681 F.2d 804 (3d Cir. 1982).

      A casualty loss not connected with a trade or business or a

transaction entered into for profit is deductible under section
                                - 37 -

165(h) only to the extent (1) the loss exceeds $100, and (2) the

net casualty loss exceeds 10 percent of the AGI of the taxpayer.

     The amount of the casualty loss from a partial destruction

of property is the lesser of the taxpayer’s adjusted basis of the

property or the difference in the property’s fair market value

immediately before and after the casualty.       Sec. 1.165-7(b)(1),

Income Tax Regs.   The amount of the loss is reduced by any

insurance recovery and salvage value.       Sec. 165(a); sec.

1.165-1(c)(4), Income Tax Regs.    To establish the amount of the

loss, the relevant fair market values of the property “shall

generally be ascertained by competent appraisal” conducted in a

manner to ensure that any casualty loss deduction “be limited to

the actual loss resulting from damage to the property.”         Sec.

1.165-7(a)(2)(i), Income Tax Regs.       As an alternative, the

taxpayer may use the cost of repairs to prove the casualty loss

(the cost of repairs method).    See sec. 1.165-7(a)(2)(ii), Income

Tax Regs.

3.   Cause of Damages

      Petitioners presented credible evidence that Hurricane

Georges damaged the beach lot by causing loss of sand that

persisted until the sand was replenished by ocean tides and the

beach replenishment program of the City of Gulf Shores, Alabama.

Beach erosion from Hurricane Georges revealed the remains of the

wreck.   Petitioners claim the visibility of the wreck and
                              - 38 -

destruction of beautiful, picturesque sand dunes with sea oats

adversely affected the beauty of the beach and hampered the

enjoyment of leisure and recreation activities on the beach.

Respondent submitted no evidence to refute these claims.

     However, we reject petitioners’ casualty loss claim for

Baldwin County’s change of the coastal construction setback line

after Hurricane Georges, which limited the area of the beach lot

available for construction of a new beach house.   Any reduction

in value of the beach lot owing to the Baldwin County government

restriction was not a casualty loss because the proximate cause

of the loss was the government restriction rather than Hurricane

Georges itself.   See Kemper v. Commissioner, supra.   Moreover,

the government restriction does not constitute a casualty as

defined under section 165(c)(3) or “other casualty” as defined in

Maher v. Commissioner, supra, and Coleman v. Commissioner, supra.

     With respect to the Atmore residence, unlike the beach lot,

petitioners failed to introduce sufficiently credible evidence

that the 1997 earthquakes or Hurricane Georges caused damages to

the Atmore residence that were not covered by insurance.

     Although petitioners introduced photographic evidence to

establish the crack or cracks in the floors of two rooms on the

ground floor of the house, petitioners did not present any expert

opinion or other independent evidence that the seismic activity

was the cause of the crack or cracks in the floors.    Petitioners
                               - 39 -

rely on petitioner’s self-serving assertion that there “is no

other way that those cracks could have occurred other than

through those two earthquakes”.   Petitioner was not trained or

qualified to determine whether an earthquake was capable of

causing the crack or cracks.   Even if the crack or cracks were

caused by the 1997 earthquakes, there is no evidence in the

record, besides petitioner’s self-serving assertion, to support

petitioners’ contention the 1997 earthquakes damaged the

foundation of the Atmore residence or that the crack or cracks on

the ground floor were caused by damage to the foundation.

     In Abrams v. Commissioner, T.C. Memo. 1981-231, we found a

casualty loss as a result of cracks in the taxpayer’s medical

office building connected with earthquakes and “seismic

activity”.   Although we did not conclude the cracks were

necessarily caused directly by an “earthquake”, we estimated a

casualty loss under Cohan v. Commissioner, 39 F.2d 540, 543-544

(2d Cir. 1930), because the abrupt manifestation of the cracks,

when added to the considerable seismic activity in the area

around the time they appeared, indicated they resulted from a

sudden, unexpected natural force.

     Respondent argues the case at hand is distinguishable from

Abrams because the evidence does not establish that the crack or

cracks in the floors of the Atmore residence necessarily resulted

from a sudden, unexpected natural force rather than some other
                                - 40 -

cause unrelated to a casualty, such as a structural flaw in the

Atmore residence.    We agree with respondent.

     First, unlike the record in Abrams, the record here does not

establish the crack or cracks in the tile floors of the Atmore

residence occurred in proximate time to either of the 1997

earthquakes.   Even though the May earthquake occurred less than 3

weeks after commencement of construction of the Atmore residence,

the foundation had been completed and was covered with sawdust

and construction materials so that any crack or damage to the

foundation would not have been noticeable immediately after the

May earthquake.     There was no evidence the crack or cracks

occurred in proximate time to the October earthquake because

petitioners did not notice the crack or cracks until after they

moved into the house in early 1998.      Second, unlike the taxpayers

in Abrams, petitioners introduced no expert testimony or

independent evidence to prove the earthquakes caused the crack or

cracks.   Third, the two 1997 earthquakes were not nearly as

powerful on the Richter scale and did not occur in substantial

numbers as did the earthquakes in Abrams.      Fourth, the crack or

cracks in the Atmore residence are nowhere near as extensive as

those described in Abrams.

     Although photographs introduced by petitioners establish the

damage to the exterior brick as a result of Hurricane Georges,

petitioner was not sure whether the insurance company paid any
                              - 41 -

amount towards repairing the brick damage or installing the vinyl

siding.   Petitioners failed to introduce any invoices or other

documents to establish the amount of loss covered by insurance.

Petitioners’ failure to introduce such documents, which were in

all likelihood in their possession and which, if accurate, would

be favorable to them, gives rise to the presumption that if

produced, the insurance invoices would be unfavorable.   See

Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165

(1946), affd. 162 F.2d 513 (10th Cir. 1947).

4.   Losses in Value, If Any, Caused by Casualties

     Petitioners failed to introduce sufficiently credible

evidence of the amount of casualty losses, if any, to the Atmore

residence or the beach lot as a result of the natural disasters.

     We will not apply the cost of repairs method to any of

petitioners’ claimed casualty losses because petitioners

introduced no evidence of the cost of repairs and did not claim

any damages using the cost of repairs method.11

     The amount of the casualty loss from a partial destruction

of property is the lesser of the taxpayers’ adjusted basis of

their property or the difference in their property’s fair market



     11
      Even if petitioners had introduced evidence of the cost of
installing vinyl siding, petitioners’ precautionary measure of
covering the exterior brick with vinyl siding to avoid a possible
casualty at a future date is not deductible as a casualty loss.
See Austin v. Commissioner, 74 T.C. 1334, 1337 (1980).
                               - 42 -

value immediately before and after the casualty.   Sec.

1.165-7(b)(1), Income Tax Regs.

     Petitioners’ only evidence in support of the amounts of the

claimed losses was petitioners’ self-serving estimates of the

decrease in fair market values of their properties.   Petitioners

introduced no documentary evidence or expert testimony, such as

an appraisal from a competent professional, to ascertain the

difference in fair market values of the Atmore residence or beach

lot before and after the natural disasters.   See sec. 1.165-

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

     Petitioners failed to introduce into evidence the assessor’s

appraisal of the Atmore residence that they claim was consistent

with their estimate of the decrease in the fair market value of

the Atmore residence after the 1997 earthquakes, even though the

Court held the record open for 30 days to allow them to do so.

Petitioners’ failure to introduce the assessor’s appraisal within

their possession and which, if true, would be favorable to them,

gives rise to the presumption that if produced, the assessor’s

appraisal would be unfavorable.   See Wichita Terminal Elevator

Co. v. Commissioner, supra.

     Although an owner of property is competent to testify

regarding its value, the weight of such testimony is affected by

the owner’s knowledge of circumstances which affect value.      Neff

v. Kehoe, 708 F.2d 639, 644 (11th Cir. 1983); J & H Auto Trim Co.
                                - 43 -

v. Bellefonte Ins. Co., 677 F.2d 1365, 1369 (11th Cir. 1982).

Inasmuch as the owner is an interested witness, the task of the

trier of fact is to evaluate the credibility of the owner’s

testimony.    Neff v. Kehoe, supra; J & H Auto Trim Co. v.

Bellefonte Ins. Co., supra.     Petitioner’s testimony lacks

credibility because he was not trained or qualified to determine

the amount of the decrease in value of his home or beach lot as a

result of the damage alleged.

     Tank v. Commissioner, 270 F.2d 477 (6th Cir. 1959), revg. 29

T.C. 677 (1958), cited by petitioners, is distinguishable from

the case at hand.   There the Court of Appeals for the Sixth

Circuit reversed a casualty loss disallowance by this Court and

allowed the loss, relying not only on the taxpayers’ own

testimony, but also on evidence of cause of the loss by a

licensed architect and evidence of the loss of value by a real

estate appraiser.

     Even assuming, on the basis of petitioner’s status as a

leading citizen of Atmore with knowledge of local conditions,

that he was an expert on local property values, we have broad

discretion to evaluate “‘the overall cogency of each expert’s

analysis.’”   Sammons v. Commissioner, 838 F.2d 330, 334 (9th Cir.

1988) (quoting Ebben v. Commissioner, 783 F.2d 906, 909 (9th Cir.

1986), affg. in part and revg. in part T.C. Memo. 1983-200),

affg. in part and revg. in part on another ground T.C. Memo.
                              - 44 -

1986-318; Estate of True v. Commissioner, T.C. Memo. 2001-167.

Although expert testimony usually helps the Court determine

values, sometimes it does not, particularly when the expert is

merely an advocate for the position argued by one of the parties.

See, e.g., Estate of Halas v. Commissioner, 94 T.C. 570, 577

(1990); Laureys v. Commissioner, 92 T.C. 101, 129 (1989); Estate

of True v. Commissioner, supra.   We have rejected expert opinions

based on conclusions that are unexplained or contrary to the

evidence.   See Knight v. Commissioner, 115 T.C. 506 (2000); Rose

v. Commissioner, 88 T.C. 386, 401 (1987), affd. 868 F.2d 851 (6th

Cir. 1989).   Testimony that is inherently improbable or

manifestly unreasonable may be rejected, even though no

contradictory evidence is offered.     Quock Ting v. United States,

140 U.S. 417 (1891).

     Petitioners claim the value of the Atmore residence

decreased by more than 30 percent ($300,000 decrease in value of

$989,158 house) as a result of the crack or cracks in the tile

floors and more than 21 percent ($214,168 decrease in value of

$989,158 house) as a result of damage to the exterior brick and

the need to install the vinyl siding.    Petitioners did not

explain the methodology or the factors used to make their

valuations.   It is improbable that the value of the Atmore

residence would drop by more than 30 percent simply because of a

crack or cracks in the tile floors with no evidence of damage to
                              - 45 -

the foundation or by more than 21 percent as a result of damage

to the exterior brick and the need to cover the brick with vinyl

siding.

     Because the wreck on the beach lot has now been covered by

sand and the beach replenished by ocean tides and the beach

replenishment program of the City of Gulf Shores, Alabama, the

loss in value of the beach lot from erosion was not permanent and

is not a casualty loss.   See Bidelspacher v. Commissioner, T.C.

Memo. 1980-538.   Moreover, it is improbable the beach lot would

now be worthless as a result of beach erosion that has since been

remedied.

     Further, the record contains no evidence, such as reduction

in value of similar houses as a result of similar damage, cost of

repairing similar damage, reduction in value of similar beach

lots as a result of beach erosion, cost of replenishing the lost

sand, etc. upon which we might exercise our judgment to estimate

the amount of the loss or losses in value from the 1997

earthquakes or Hurricane Georges12 under Cohan v. Commissioner,

39 F.2d 540 (2d Cir. 1930).   See Williams v. United States, 245




     12
      We have no confidence whatsoever that any amount of loss
we might estimate on the basis of cost of repairs would equal or
exceed the additional amount--$69,314--needed to reach the 10
percent of AGI threshold provided by sec. 165(h). See supra
notes 8 and 9 and accompanying text.
                              - 46 -

F.2d 559, 560 (5th Cir. 1957); Vanicek v. Commissioner, 85 T.C.

731, 742-743 (1985).

     We hold that petitioners did not sustain deductible casualty

losses to the Atmore residence from the 1997 earthquakes or

Hurricane Georges or to the beach lot from Hurricane Georges.

                            Conclusions

     Petitioners are liable for the section 6654(a) addition to

tax in the section 6330 cases, the section 6651(a)(2) addition to

tax in the section 6330 cases for the period April 16 through

October 15, 1998, and the period November 17, 1998, to the date

of payment up to the maximum statutory amount, and the section

6651(a)(1) addition to tax in the section 6330 cases and the

deficiency case for the period November 17 through December 21,

1998.   Respondent’s collection determination is sustained.

     Petitioners are not entitled to any abatement of interest

with respect to amounts reported on their 1997 return.

     Petitioners are not entitled to deduct casualty losses on

their 1997 return because the allowable losses they sustained did

not reach the deduction threshold provided by section 165(h).
                        - 47 -

To give effect to the foregoing,

                                   An appropriate order will

                              be issued and decisions will

                              be entered under Rule 155 in

                              docket Nos. 11382-01L and

                              14817-02L, and decision will

                              be entered under Rule 155 in

                              docket No. 498-02.
