                        T.C. Memo. 2005-123



                      UNITED STATES TAX COURT



                 NARVELL DARLING, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5884-04.                 Filed May 25, 2005.


     Narvell Darling, pro se.

     Laurie A. Nasky, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOLDBERG, Special Trial Judge:     Respondent determined a

deficiency in petitioner’s Federal income tax of $6,361 for the

taxable year 2001.   Unless otherwise indicated, 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.
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     The issue for decision is whether petitioner is entitled to

a casualty loss deduction of $35,410 for damage to his personal

property and residence due to a flood.

                         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.   Petitioner resided in

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

case.

     During 2001, petitioner lived in a three-story townhouse

located at 1130 East 81st Street, Townhouse D, 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.   According to news

articles, at its peak the storm dumped billions of gallons of

water on the area.   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.

     When petitioner returned home from work he discovered that a

part of his basement had flooded.   Petitioner estimated that the

water in his basement was approximately 3½ to 4 feet deep.
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Petitioner had an insurance policy with State Farm Mutual

Insurance Co., but, unfortunately, it did not cover flooding, so

he did not file a claim.      Petitioner had the water pumped out of

his basement.    He then inventoried the damage to his house and

his personal property.

     Petitioner timely filed a Federal income tax return

electronically for the 2001 taxable year.        On his Form 1040, U.S.

Individual Income Tax Return, petitioner claimed a casualty loss

deduction of $35,410, 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.

     On Form 4684, petitioner described the property for which he

claimed a casualty loss as:      “Furniture, carpeting, clothing,

books, artwork, electronics, tools, software, computers, and

appliances”.    The Form 4684 reflected in pertinent part as

follows:

     Section A--Personal Use Property

     Property Description               Furniture and carpeting
     Line A2. Cost or other basis of each property        $15,800
     Line A3. Insurance or other reimbursement                  0
     Line A5. Fair market value before casualty or theft   12,600
     Line A6. Fair market value after casualty or theft         0
     Line A7. Subtract line 6 from line 5                  12,600
     Line A8. Enter the smaller of line 2 or line 7        12,600
     Line A9. Subtract line 3 from line 8                  12,600

     Property Description               Clothing, books, artwork
     Line A2. Cost or other basis of each property        $12,700
     Line A3. Insurance or other reimbursement                  0
     Line A5. Fair market value before casualty or theft   11,900
                                     - 4 -
     Line   A6.   Fair market value after casualty or theft        0
     Line   A7.   Subtract line 6 from line 5                 11,900
     Line   A8.   Enter the smaller of line 2 or line 7       11,900
     Line   A9.   Subtract line 3 from line 8                 11,900

     Property Description                   Electronics, tools, software,
                                            computer
     Line   A2.   Cost or other basis of each property        $11,800
     Line   A3.   Insurance or other reimbursement                  0
     Line   A5.   Fair market value before casualty or theft   10,200
     Line   A6.   Fair market value after casualty or theft         0
     Line   A7.   Subtract line 6 from line 5                  10,200
     Line   A8.   Enter the smaller of line 2 or line 7        10,200
     Line   A9.   Subtract line 3 from line 8                  10,200

     Property Description               Appliance 06-19-00
     Line A2. Cost or other basis of each property         $5,700
     Line A3. Insurance or other reimbursement                  0
     Line A5. Fair market value before casualty or theft    5,700
     Line A6. Fair market value after casualty or theft         0
     Line A7. Subtract line 6 from line 5                   5,700
     Line A8. Enter the smaller of line 2 or line 7         5,700
     Line A9. Subtract line 3 from line 8                   5,700

     Line   A10D.   Casualty or theft loss                    $40,400
     Line   A11D.   The smaller of line 10 or $100                100
     Line   A12D.   Subtract line 11 from line 10              40,300
     Line   A13D.   Add the amounts on line 12 of all
                    Forms 4684                                40,300
     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.                           40,300
     Line A17D.     Enter 10% of your adjusted gross income
                    from Form 1040, line 37.                    4,890
     Line A18D.     Total personal property loss amount       $35,410

     On January 28, 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 was liable for a tax

deficiency in the amount of $6,361.

                                    OPINION

     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
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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

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 he 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, are allowed

only as specifically provided by statute, and petitioner bears

the burden of proving that he 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 his burden of

proving that he is entitled to a casualty loss deduction

allegedly incurred during taxable year 2001.    Respondent argues
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that petitioner has failed to produce any credible evidence to

substantiate his claimed loss, including the occurrence of any

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

     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



     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.
                               - 7 -

“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

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
                               - 8 -

      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.

      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 he is otherwise entitled, the Court may estimate the amount

for 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 his 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
                               - 9 -

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

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

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, he still has to substantiate the amount of

the losses due to the casualty.

     At trial, petitioner testified:     (1) The flood which

occurred in the Chicago area in August of 2001, resulted in his

townhouse basement taking on “four and a half feet of water”; (2)

he had the water pumped out of his basement; and (3) that the

carpeting, walls, and several personal property items which were

kept in the basement were damaged or destroyed.     Petitioner

testified that he made a list of these items and then documented

such damages with repair receipts.     However, the list and

documents were destroyed by a fire at his business office.       At

trial we received into evidence pictures and police reports which

petitioner claims substantiates the fire that destroyed the

documentary evidence of his casualty loss.

     Petitioner had insurance through State Farm Mutual Insurance

Company.   He contends that he tried to file a claim with his

insurance company; however, when he called State Farm Mutual

Insurance Company he was notified that his policy did not cover

flood damage.   Petitioner has no evidence, except his testimony,
                              - 10 -

to support his contention that he attempted to file an insurance

claim as a result of the flood.

     Petitioner also testified as to his calculation of his

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”.

He then found purchase receipts for these items.   Petitioner

“depreciated” all items by 10 percent of their purchase price, no

matter how long he had owned the item.   Petitioner then

calculated his casualty loss by using the sum of all the

depreciated values and applying the limitations of section

165(h).

     Petitioner did not attempt to recreate the above-described

inventory list of items that were damaged or destroyed.

Petitioner did not attempt to obtain receipts for repairs to the

premises.   Petitioner did not call, as witnesses to substantiate

the casualty loss, any of the individuals who allegedly helped

him pump the water out of his basement or helped him dispose of

the damaged or destroyed items of personal property.

     Petitioner has presented no reliable evidence of any repairs

made to his townhouse or to the personal property items that were

damaged or destroyed as a result of the flood.   The only evidence

presented by petitioner to support his claimed losses is his own

self-serving testimony.   This Court is not bound to accept a
                             - 11 -

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 his testimony or

provide any substantiation to support his claimed amount of

casualty loss, we find 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 $35,410.

     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.

     To reflect the foregoing,


                                      Decision will be entered

                                 for respondent.
