[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 16-11042

________________________

Agency No. 019797-13

HARVEY L. TUCKER, 

 Petitioner-Appellant,

 versus

COMMISSIONER OF INTERNAL REVENUE, 

 Respondent-Appellee,

________________________

Petition for Review of a Decision of the

U.S. Tax Court

________________________

(November 21, 2016)

Before TJOFLAT and HULL, Circuit Judges, and MENDOZA,* District Judge.

HULL, Circuit Judge:

 

* Honorable Carlos Eduardo Mendoza, United States District Judge, for the Middle 

District of Florida, sitting by designation.

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Appellant Harvey L. Tucker petitions for review of the United States Tax 

Court’s decision upholding the Commissioner of Internal Revenue’s (the 

“Commissioner”) determination that he owes income tax deficiencies and related 

penalties1 for 2004, 2005, and 2006. After review and oral argument, we affirm.

I. FACTUAL BACKGROUND

A. Tucker’s Real Estate Development Company

At all times relevant to this appeal, Tucker was the president, director, and 

sole shareholder of a Florida “S” corporation2 called Paragon Homes Corporation 

(“Paragon”), which was in the business of real estate acquisition, development, and 

sales. Paragon was incorporated in November 1997. Paragon filed annual reports 

in 2008, 2010, and 2011. Paragon remained an active corporation until September 

28, 2012. Paragon owned several properties in Hillsborough County, Florida, 

including multiacre tracts, platted subdivisions, lots, and single-family homes. At 

the beginning of 2008, Paragon was a solvent company meeting its payroll and 

paying its mortgage obligations, rent, insurance premiums, real estate taxes, and 

utility bills. 

 1 The parties dispute whether Tucker has waived his argument pertaining to the penalties 

imposed by the Tax Court. Regardless, Tucker concedes that, should we rule against him on the 

loss-deduction issue, we need not reach the penalty issue. Accordingly, we do not address it.

2 Paragon elected to be an “S” corporation for federal income tax purposes. This simply means 

that the tax attributes of the corporation pass through to the shareholders. See I.R.C. §§ 1366(a), 

6037(a).

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In order to obtain the funds to purchase real property, Paragon took out 

mortgages with several banks, including Platinum Bank (“Platinum”), Branch 

Banking & Trust Co. (“BB&T”), Wachovia Bank (“Wachovia”), and Fidelity Bank 

(“Fidelity”). All mortgages were with recourse to Paragon. Tucker also personally 

guaranteed the mortgage loans on Paragon’s properties. 

B. The 2008 Housing Market Crash

In 2007 and 2008, the residential real estate market in Hillsborough County 

went into sharp decline, with annual housing starts down 79% from their peak in 

June 2006, annual closings down 65% from that date, and with a 36% decline in 

median home price for a single-family unit. 

According to Tucker’s trial testimony, Paragon was out of business and 

insolvent by the end of 2008. Paragon had no sales and no revenue. As a result, 

Paragon “cease[d] . . . operations” at the end of 2008—it closed its office, 

dismissed its employees, and stopped making payments on its mortgages, 

insurance premiums, and taxes. At the close of 2008, Paragon had little over 

$12,000 in its bank accounts. In Tucker’s mind, Paragon’s real estate inventory—

individually and in the aggregate—was “worthless” as of December 31, 2008,

because “prices had fallen through the floor. There was no demand and we 

couldn’t generate any sales. So, Paragon Homes . . . had no value, had a negative 

value.” 

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C. Paragon’s Properties

According to the record evidence, Paragon owned (and owed mortgages on) 

the following properties3 as of December 31, 2008:

Property Name Fair Market 

Value (“FMV”)4

Balance due on 

mortgages5

Bank that owned 

the mortgage

Long Pond / 

Hunter’s Lake

$1,250,000 $1,859,725 Platinum

Culbreath Estates

(3 properties)

$510,0006

(total)

$591,244

(total)

Platinum

Massaro II / 

Meadow Chase

$475,000 $643,500 BB&T

Amberwave 

Estates—Lot 1

$127,500 $115,000 BB&T

Walden Reserve—

Lot 11 / Block 2

$270,000 $270,113 BB&T

Walden Reserve—

Lot 15 / Block 2

$270,000 $206,478 Fidelity

Walden Reserve—

Lot 3 / Block 2

$270,000 $192,524 Fidelity

 3 On August 29, 2008, Paragon sold a parcel in Hillsborough County identified as the Huntley 

property for $735,000, a contract price less than the mortgage on the property. The lender,

Platinum, held the mortgage on that property, but it released the mortgage to permit the sale to 

proceed. The balance of the mortgage was extinguished as part of the parties’ settlement 

agreement. Neither Tucker nor the Commissioner included the Huntley property in the 

determination of Paragon’s inventory as of December 31, 2008. 

4 The FMV for each property was determined by Jamie Myers, a real estate appraiser and 

Tucker’s expert witness at trial. Myers also gave his opinion that, at the end of 2008, there was 

value to all of these properties and “some demand” for the properties. 

5 Amounts are rounded to the nearest dollar. The “balance due” figure represents only the 

outstanding mortgage and does not include taxes, interest, fees, etc. 

6 In his brief, Tucker lists these properties as having a total FMV of $520,000, but the record 

evidence shows that the three properties were given the following FMVs: $310,000, $105,000, 

and $95,000, which total $510,000. 

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Walden Reserve—

Lot 8 / Block 2 and 

Walden Reserve 

Vacant Lots

$1,180,000

(total)

$2,126,158

(total)

Fidelity

Misty Glen—

Lot 5 / Block B

$270,000 $223,000 Fidelity

Walden Reserve—

Lot 19 / Block 1

$260,000 $198,298 Wachovia

Misty Glen—

Lot 2 / Block B

$307,000 $293,739 Wachovia

Misty Glen 

(Windhorst)

$620,000 $984,409 Wachovia

McMullen Road / 

Forest Glen

$950,000 $887,250 Wachovia

D. Paragon Disposes of its Properties

Even after Paragon was allegedly shuttered at the end of 2008, Tucker was 

aware of his continuing obligations on the mortgages. He claimed that, at the end 

of 2008, he owed more than $2 million on Paragon’s “underwater” properties. 

In the summer of 2009, Tucker transferred funds to Paragon, a move he later 

called a “disastrous mistake.” Specifically, bank records for Paragon’s business 

account show deposits / credits of $85,028 in June 2009; $70,000 in July 2009; 

$460,000 in August 2009; and $772,525.81 in September 2009. Tucker testified 

that he did this in order to use Paragon as a “conduit” to discharge his liabilities 

and “protect” himself. Tucker testified that he wished to complete and sell homes 

under construction in order to pay off the mortgages and limit his personal losses. 

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According to Tucker, he continued acting throughout 2009 and 2010 solely 

to mitigate his personal losses. Tucker testified that this infusion of money was not 

a capital contribution to Paragon, nor did he on any occasion act to save or protect 

Paragon. 

The record shows that the properties and mortgages were disposed of as 

follows:

1. Properties Secured by Mortgages from Platinum

On October 27, 2008, Platinum filed a foreclosure lawsuit against Tucker 

and Paragon in the Circuit Court for Hillsborough County, Florida. On February 

11, 2009, a final judgment of foreclosure was entered in favor of Platinum. On 

October 12, 2009, Platinum, Paragon, and Tucker entered into a Mutual General 

Release, which relieved Tucker and Paragon of all liabilities on the properties in 

exchange for a $275,000 payment. Tucker testified that he alone paid the 

settlement amount. 

2. Properties Secured by Mortgages from BB&T

On September 24, 2008, BB&T filed a foreclosure lawsuit against Tucker 

and Paragon in the Circuit Court for Hillsborough County, Florida. On March 4, 

2009, a final judgment of foreclosure was entered in favor of BB&T. On 

September 9, 2009, BB&T, Paragon, and Tucker entered into a Settlement 

Agreement and Release of Claims, which relieved Tucker and Paragon of all

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liabilities on the properties, as well as Paragon’s line of credit with BB&T, in 

exchange for a $160,000 payment. Tucker testified that he alone paid the 

settlement amount. Yet Paragon’s business account reflects a $160,000 check 

drawn on Paragon’s account on September 4, 2009. 

3. Properties Secured by Mortgages from Fidelity

On May 12, 2009, Tucker, through Paragon, signed and filed a Notice of 

Commencement as to Walden Reserve—Lot 8 / Block 2, identifying Paragon as 

the owner and contractor for a single-family residence to be built on this property. 

As Tucker explained, this was an attempt “to finish the [construction of the 

property] to put [it] in a saleable condition to help mitigate my damages.” Tucker 

stated that the Notice of Commencement was in Paragon’s name because Paragon 

was the named owner of the property. 

On September 25, 2009, another lot in Walden Reserve (Lot 15 / Block 2) 

was sold for $239,000, satisfying the mortgage obligation on that property. On 

October 29, 2009, Misty Glen—Lot 5 / Block B was sold for $254,000, satisfying 

the mortgage obligation on that property. 

On March 1, 2010, Fidelity filed a foreclosure suit against Tucker and 

Paragon in the Circuit Court for Hillsborough County, Florida, seeking foreclosure 

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on 33 lots in a tract identified as Walden Reserve. On February 23, 2011, a final 

judgment of foreclosure was entered in favor of Fidelity.7

 

On July 28, 2010, Walden Reserve—Lot 3, Block 2 was sold for $210,000, 

satisfying the mortgage obligation on that property. 

4. Properties Secured by Mortgages from Wachovia

In September 2010, Wells Fargo Bank, as successor to Wachovia, filed a 

foreclosure suit against Tucker and Paragon, as to all properties except Misty 

Glen—Lot 2, Block B. 

On October 8, 2010: Paragon undertook development of Walden Reserve—

Lot 19, Block 1. Tucker, through Paragon, signed and filed a Notice of 

Commencement, identifying Paragon as the owner and contractor for a singlefamily residence to be built on this property. 

E. Tucker Transfers Funds Out of Paragon

On November 30, 2009, there was a balance of $839,744.58 in Paragon’s 

bank account. In December 2009, on the advice of his counsel, Tucker established 

Harvey L. Tucker Family, LLLP, and transferred $358,255.63 from Paragon’s 

bank account to the LLLP. He also transferred a little over $400,000 from the 

Paragon account to himself, and he used these funds to purchase a variable annuity 

 7 The judgment lists an effective date of August 19, 2009. 

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life insurance policy. Tucker testified that he did this to protect himself from 

“[b]anks and other creditors.” 

F. The Federal Income Tax Returns

On its 2008 federal income tax return, Paragon reported a loss of 

approximately $10.8 million. Of this, approximately $8,928,845 was attributable 

to a “write down” of Paragon’s real estate inventory to current market value as of 

December 31, 2008.8

 Tucker then claimed a flow-through loss from Paragon of 

roughly $6.78 million on his individual 2008 income tax return. As a result of this 

loss, Tucker reported a 2008 net operating loss (“NOL”) of more than $6.7 million. 

Tucker then elected to carry the 2008 NOL back to tax years 2003, 2004, 

2005, 2006, and 2007. 9

 Tucker sought a refund totaling almost $2 million for tax 

years 2003, 2004, 2005, and 2006 based on the loss carrybacks. 

G. The Commissioner Issues a Notice of Deficiency to Tucker

The Commissioner conducted an audit and concluded that Paragon’s 

allowable loss for 2008 was, in actuality, only $1.5 million. As a result, on June 4, 

 8 The remainder of the claimed loss consisted of interest expense deductions, depreciation 

deductions, and a deduction for financial fees. Tucker has not contested the Tax Court’s 

disallowance of these other deductions. Thus, Tucker has waived any claim with respect to these 

items. See Little v. T-Mobile USA, Inc., 691 F.3d 1302, 1306 (11th Cir. 2012).

9 In general, a net operating loss may be carried back only to the two taxable years preceding the 

loss year. I.R.C. § 172(b)(1)(A)(i). A special rule, however, applied to net operating losses

incurred during the 2008 taxable year that allowed taxpayers to elect to carry back a 2008 net 

operating loss attributable to an eligible small business for a period of three to five years instead 

of the usual two. The Worker, Homeownership, and Business Assistance Act of 2009, Pub. L. 

No. 111-92, § 13(a), Nov. 6, 2009, 123 Stat. 2984, 2992.

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2013, the Commissioner issued a Notice of Deficiency to Tucker, indicating that it 

had disallowed his claimed NOL carrybacks for 2004, 2005, and 2006. The Notice 

of Deficiency indicated that Tucker owed the following amounts:

Year Tax Deficiency Penalty 

(I.R.C. § 6662(a))

2004 $610,541.00 $122,108.20

2005 $714,979.00 $142,995.80

2006 $152,851.00 $30,570.20

II. PROCEDURAL HISTORY

On August 26, 2013, Tucker filed a petition with the Tax Court challenging 

the Commissioner’s Notice of Deficiency. On December 9, 2014, the Tax Court 

held a one-day bench trial. 

On September 22, 2015, the Tax Court released its memorandum opinion. 

The Tax Court explained that whether Tucker’s NOL carrybacks were proper 

depended on whether the Commissioner correctly disallowed Paragon’s claimed 

deduction under I.R.C. § 165(a) and its accompanying regulation, which allow 

deductions for losses stemming from “closed and completed transactions,” which 

may include abandonment of an asset or an asset becoming worthless. The Tax 

Court stated the general rule that, when a taxpayer’s real property is secured by a 

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recourse obligation,10 the taxpayer is not entitled to a loss deduction until the year 

of the foreclosure sale, regardless of abandonment or worthlessness. The Tax 

Court noted Tucker’s argument that Paragon’s investments in its properties were 

“closed and completed” at the end of 2008 because it was “impossible” for 

Paragon to pay a deficiency judgment, and that any money later invested in the 

properties came from Tucker’s own pocket in an effort to mitigate his own 

personal exposure. The Tax Court summarized that, “[i]n essence [Tucker] argues 

that the facts and circumstances of his case distinguish it from other cases 

involving recourse loans [and that, therefore,] the general rule . . . should not 

apply.” 

In support of this argument, as the Tax Court noted, Tucker relied on 

Treasury Reg. § 1.165-1(d)(2). But the Tax Court rejected this argument because 

it “confuses the test for ‘closed and completed transactions’ with respect to 

casualty losses and losses on land due to abandonment and worthlessness of 

property” and “mistakes the taxpayer for the banks.” The Tax Court also rejected 

Tucker’s argument that Paragon could not pay a deficiency judgment as “simply 

not true,” pointing to the funds that Paragon had in its accounts during 2009. 

 10 A recourse obligation or debt is one guaranteed by a third party such that the lender would 

have recourse to seek payment from this third party in the event of default. See Laney v. 

Comm’r, 674 F.2d 342, 349 (5th Cir. Unit A 1982). There is no dispute in this case that the 

mortgages securing the properties were recourse debts.

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The Tax Court also determined that “the record does not indicate that any of 

Paragon’s properties were abandoned or became worthless.” It determined, 

instead, that Paragon’s “subsequent attempts in 2009 and 2010 to sell the 

properties, construct homes, and settle claims with the banks show that Paragon 

did not abandon the properties.” Furthermore, the properties were not worthless to 

Paragon at the end of 2008 because “the properties could be used to reduce 

Paragon’s liability exposure for a deficiency judgment.” In addition, Tucker’s own 

expert witness testified that the properties had some value and there was “some 

demand” for the properties at the end of 2008. Thus, the Tax Court concluded that 

Tucker had not met his burden of establishing the abandonment or worthlessness 

of the properties by the end of 2008.11

On February 3, 2016, the Tax Court entered a formal decision imposing the 

following deficiencies and penalties against Tucker:

Year Tax Deficiency Penalty 

(I.R.C. § 6662(a))

2004 $539,666.00 $107,933.20

2005 $714,979.00 $142,995.80

2006 $152,851.00 $30,570.20

 11 The Tax Court also affirmed the Commissioner’s disallowance of additional deductions and 

the imposition of penalties. 

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Tucker timely appealed the Tax Court’s determination to this Court. 

III. DISCUSSION

We review the Tax Court’s legal conclusions de novo, and its factual 

findings for clear error. Gustashaw v. Comm’r, 696 F.3d 1124, 1134 (11th Cir. 

2012). The Commissioner’s determination of a deficiency is presumed correct, 

and the taxpayer has the burden of proving otherwise. Welch v. Helvering, 290 

U.S. 111, 115, 54 S. Ct. 8, 9 (1933). Additionally, deductions are a matter of 

legislative grace, and the taxpayer has the burden of proving his entitlement to any 

claimed deduction. C. A. White Trucking Co., Inc. v. Comm’r, 601 F.2d 867, 869 

(5th Cir. 1979).

Section 165(a) of the Internal Revenue Code allows a deduction for “any 

loss sustained during the taxable year and not compensated for by insurance or 

otherwise.” I.R.C. § 165(a). The accompanying regulation states, “[t]o be 

allowable as a deduction under section 165(a), a loss must be evidenced by closed 

and completed transactions, fixed by identifiable events, and . . . actually sustained 

during the taxable year.” Treas. Reg. § 1.165–1(b); see also id. § 1.165-1(d)(1). In 

most cases, a “closed and completed transaction[]” will occur upon a sale or other 

disposition of the property, but this requirement may also be satisfied if the 

taxpayer abandons the asset or the asset becomes worthless. Proesel v. Comm’r, 

77 T.C. 992, 1005-06 (1981). “Abandonment” and “worthlessness” are separate 

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and distinct grounds, either one of which may give rise to a deduction under 

§ 165(a). Echols v. Comm’r, 935 F.2d 703, 706 (5th Cir. 1991).

A. Paragon12 Did Not Abandon the Properties in 2008

To show abandonment, the taxpayer must demonstrate both “an intention to 

abandon and some act evidencing that intention.” Dezendorf v. Comm’r, 312 F.2d 

95, 96 (5th Cir. 1963); see also Echols, 935 F.2d at 707 (“[T]he abandoning party 

must manifest an intent to abandon by some overt act or statement reasonably 

calculated to give a third party notice of the abandonment.”); Middleton v. 

Comm’r, 77 T.C. 310, 322 (1981), (writing that abandonment requires (1) an 

intention on the part of the owner to abandon the asset; and (2) an affirmative act 

of abandonment), aff’d 693 F.2d 124 (11th Cir. 1982). Additionally, the 

abandonment must occur in the tax year for which the deduction is claimed. 

Dezendorf, 312 F.2d at 96. Determinations regarding the existence and timing of 

an abandonment are issues of fact. L & C Springs Assocs. v. Comm’r, 188 F.3d 

866, 870 (7th Cir. 1999).

Here, Paragon points to the fact that it had closed its office, dismissed its 

employees, and stopped making payments on its obligations by December 31, 

2008, as evidence of its abandonment. The parties dispute whether cessation of 

 12 As explained above, Tucker’s NOL carrybacks stem from Paragon’s claimed $10.8 million 

loss in 2008, which in turn relied on a massive write down of the FMV of its properties on 

December 31, 2008. Accordingly, as the Tax Court noted, the issue is Paragon’s claimed 

§ 165(a) loss, and the operative question is whether Paragon (not Tucker) abandoned the 

properties and/or whether the properties were worthless to Paragon by the end of 2008.

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business operations is itself enough to show abandonment. We need not decide 

this issue, however, because the Tax Court’s finding that “the record does not 

indicate that any of Paragon’s properties were abandoned” by the end of 2008 was 

not clearly erroneous. See Gustashaw, 696 F.3d at 1134. 

The record demonstrates that Paragon continued to develop and sell the 

properties throughout 2009 and 2010. This is evidenced by the fact that two 

properties were sold in September and October 2009, another property was sold in 

July 2010, and Paragon undertook construction of two homes, as evidenced by the 

Notices of Commencement that were filed on May 12, 2009, and October 8, 2010. 

Tucker also funneled more than $800,000 of his personal money into Paragon’s 

business account in order to facilitate construction on the properties.

And, unlike the taxpayers in Middleton, Paragon never offered to reconvey the 

properties back to the mortgagees in lieu of foreclosure. See 77 T.C. at 322-23. 

Instead, Paragon signed settlement agreements with Platinum and BB&T in late 

2009. Thus, Paragon’s overt acts did not evidence an intention to abandon the 

properties. See Dezendorf, 312 F.2d at 96; Middleton, 77 T.C. at 322. 

We are cognizant of Tucker’s argument that all of these actions were 

intended to protect himself from his creditors and personal obligations on the 

mortgages, and that he did not act to protect or save Paragon. However, he has not 

pointed us to any cases supporting his argument that his subjective intention to act 

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purely for his own protection is sufficient to meet his burden.13 And his argument 

that Paragon was essentially defunct and out of business by the end of 2008 is

belied by the record evidence demonstrating that Paragon continued to file reports 

with the State of Florida after December 31, 2008, it signed the settlement 

agreements with Platinum and BB&T, it was listed as the owner/builder on the 

Notices of Commencement, and it was listed as the “seller” on the realty sales 

documents. Under these circumstances, the Tax Court did not clearly err in 

determining that Paragon did not abandon the properties in 2008.

B. The Properties Did Not Become Worthless to Paragon in 2008

To receive a deduction for “worthlessness,” a taxpayer must demonstrate 

“his subjective determination of worthlessness in a given year, coupled with a 

showing that in such year the asset in question is in fact essentially valueless.” 

Echols, 935 F.2d at 708. The requirement of worthlessness is a “de minimus rule 

that the taxpayer does not have to prove that a given asset is absolutely, positively 

without any value whatsoever.” Id. at 708 n.2. Transfer of title is not a 

prerequisite to a finding of either abandonment or worthlessness. Id. at 706. 

Further, while a taxpayer need not be “an incorrigible optimist in his determination 

 13 It is true that the Tax Court has previously written that, where a taxpayer’s interest in a 

partnership became worthless in a given year, the taxpayer could take a § 165(a) deduction in 

that year, even though the taxpayer continued to contribute funds to the partnership “only to 

minimize its own losses.” Tejon Ranch Co. & Subsidiaries v. Comm’r, 49 T.C.M. (CCH) 1357 

(1985). Tucker did not cite this case in his briefs and, in any event, it is distinguishable because 

it dealt with the worthlessness of a partnership interest, not the alleged worthlessness of a piece 

of real property.

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of when property becomes worthless, a mere decline, diminution, or shrinkage in 

value is not sufficient to establish a loss.” Proesel, 77 T.C. at 1006. The question 

of worthlessness is “peculiarly one of fact” in which the petitioner bears the burden 

of proof. Id.; see also Boehm v. Comm’r, 326 U.S. 287, 293, 66 S. Ct. 120, 124 

(1945) (stating that the question of whether an asset became worthless during a 

given taxable year “is purely a question of fact to be determined in the first 

instance by the Tax Court.”).

Tucker and the Commissioner agree on the general rule that, in the case of 

recourse debts, the loss deduction must be taken in the year that the foreclosure 

sale occurs, regardless of whether the property was abandoned by or became 

worthless to the mortgagor in a prior year. See Helvering v. Hammel, 311 U.S. 

504, 512, 61 S. Ct. 368, 372 (1941) (holding that the foreclosure sale was the 

“definitive event” establishing the taxpayers’ loss); George v. United States, 124 

F.3d 216 (10th Cir. 1997) (unpublished table decision) (determining, in the context 

of a recourse loan, that the taxpayer was entitled to a deduction on the loss from 

real property in the year in which it was sold at a foreclosure sale, not in the year in 

which it was abandoned and/or became worthless to him); Comm’r v. Green, 126 

F.2d 70, 71-72 (3d Cir. 1942) (concluding that taxpayers could not deduct their 

loss on property secured by a recourse obligation in the year they allegedly 

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abandoned the property; instead, they must take the loss deduction in the year that 

the foreclosure sale occurred).

The Third Circuit in Green explained whether the mortgage at issue was a 

recourse mortgage was of “fundamental importance” to resolving the case. 126 

F.2d at 72. That is because where the mortgagor retains liability for the debt, “the 

property continues until [the] foreclosure sale to have some value which, when 

determined by the sale, bears directly upon the extent of the owner’s liability for a 

deficiency judgment.” Id.

Tucker attempts to evade this general rule by relying on a novel 

interpretation of Treas. Reg. § 1.165-1(d). That regulation provides:

A loss shall be allowed as a deduction under section 165(a) only for 

the taxable year in which the loss is sustained. For this purpose, a loss 

shall be treated as sustained during the taxable year in which the loss 

occurs as evidenced by closed and completed transactions and as fixed 

by identifiable events occurring in such taxable year. 

Treas. Reg. § 1.165-1(d)(1). The regulation then goes on to distinguish between 

instances where the loss is covered by a claim for reimbursement “to which there is 

a reasonable prospect of recovery” and losses that are not covered by such claims. 

See id. § 1.165-1(d)(2)(i)-(iii). Where there exists a claim with a reasonable 

prospect of recovery, “no portion of the loss . . . may be . . . sustained, for purposes 

of section 165, until it can be ascertained with reasonable certainty whether or not 

such reimbursement will be received.” See id. § 1.165-1(d)(2)(i). Where such a 

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claim does not exist, however, the loss may be sustained during the taxable year 

“in which the casualty or other event occurs.” See id. § 1.165-1(d)(2)(ii).

By way of illustration, the regulation gives the following examples: 

Suppose a property worth $10,000 is completely destroyed in a fire in 1961, and 

the taxpayer’s only claim for reimbursement consists of an insurance claim for 

$8,000, which claim is settled in 1962. Id. The taxpayer would then sustain a loss 

of $2,000 in 1961 under § 1.165-1(d)(2)(ii). Id. If, on the other hand, the 

taxpayer’s car were completely destroyed in 1961 due to the negligence of another 

person, and there exists a reasonable prospect of recovery on a claim for the full 

value of the car against that other driver, the taxpayer would not sustain the loss 

“until the taxable year in which the claim is adjudicated or otherwise settled” under 

§ 1.165-1(d)(2)(i). Id. 

Tucker argues that, because the regulation authorizes the loss event to be a 

“closed and completed transaction” in the year the loss occurred where there is no 

claim with a reasonable prospect of recovery when considering whether a taxpayer 

will receive additional money, the inverse must also be true: certain loss events 

can constitute a “closed and completed transaction” when determining whether the 

taxpayer will pay additional monies. Further, by the end of 2008, there was “no 

reasonable prospect” that Paragon would be able to pay a deficiency judgment. 

Tucker concedes that the regulation nominally applies to casualty losses, but he 

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stresses that the regulation also encompasses “other event[s] . . . which may result 

in a loss.” He claims that the 2008 market crash was just such an “other event.” 

There is support for Tucker’s contention that market events can sufficiently 

“fix” a loss such that the deduction may be taken in the year that the loss occurs. 

See Echols, 935 F.2d at 705-08; Helvering v. Gordon, 134 F.2d 685, 686-89 (4th 

Cir. 1943); Rhodes v. Comm’r, 100 F.2d 966, 970 (6th Cir. 1939); Denman v. 

Brumback, 58 F.2d 128, 129 (6th Cir. 1932); Tejon Ranch Co. & Subsidiaries v. 

Comm’r, 49 T.C.M. (CCH) 1357 (1985); Middleton, 77 T.C. at 320-24. None of 

these cases, however, involved recourse loans or a nominally defunct business that 

continued to develop and sell the allegedly worthless asset after its alleged 

dissolution.

Moreover, Tucker has pointed us to no case law supporting his tortured and 

novel reading of the regulation. The thrust of the regulation is that a taxpayer may 

only claim a deduction under § 165(a) in the year that the amount of the loss 

becomes readily ascertainable. See Treas. Reg. § 1.165-1(d)(2). Here, the total 

losses to Paragon were not ascertainable or fixed at the end of 2008. None of the 

homes had been formally foreclosed upon or sold. Further, in the event of 

foreclosure, the banks would have recourse both to Paragon and to Tucker 

personally. As the case law makes clear, in the case of a recourse debt, the amount 

of the loss is not readily ascertainable until the foreclosure sale because the 

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property’s value is directly linked to the extent of the owner’s liability on a 

deficiency judgment. Green, 126 F.2d at 72. 

Tucker counters that Paragon would not have owed anything in a default 

judgment because it was insolvent and out of business on December 31, 2008. But 

the Tax Court made a finding of fact that this assertion was not true. The record 

evidence amply supports this finding, along with the finding that the properties 

were not worthless to Paragon at the end of 2008. 

It is common sense that, if the properties could be sold to satisfy the 

mortgages, used as consideration in a settlement, or updated to increase the value 

(all of which actually occurred), then Paragon’s liability on the mortgage debts 

would be reduced. This reduction has value. Further, while it is not required that 

the assets be “absolutely, positively without any value whatsoever,” Tucker’s own 

expert witness testified that the properties had some value and there was “some 

demand” for the properties at the end of 2008. Echols, 935 F.2d at 708 n.2. This 

conclusion does not, as Tucker contends, mean that “property is never worthless 

regardless of the encumbrances where it has any intrinsic value.” Such a holding 

would be contrary to case law and, indeed, the Tax Court acknowledged that a 

§ 165(a) deduction based on worthlessness “requires worthlessness of the 

taxpayer’s equity in the property.” See Echols, 935 F.2d at 705-08; Gordon, 134 

F.2d at 687-89; Middleton, 77 T.C. at 320-24. The Tax Court merely concluded 

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that, in this case, the properties retained enough value to avoid being “worthless” 

within the meaning of § 165(a).

Finally, the Tax Court did not clearly err in determining that a deficiency 

judgment against Paragon would not be “impossible” given the funds flowing in 

and out of Paragon’s bank account in 2009. Though this money came from Tucker 

in a purported attempt to use Paragon as a “conduit” to cut his own losses, a move 

that Tucker now acknowledges was a “disastrous mistake,” his actions demonstrate 

that a deficiency judgment against Paragon would have been possible after the 

foreclosure sales. Taxpayers cannot have it both ways—they cannot both freely 

use a business to settle debts and sell assets and then claim that the business was 

defunct the whole while.

Accordingly, the Tax Court properly determined that Tucker had not met his 

burden of demonstrating that the Commissioner’s disallowance of the § 165(a) loss 

deduction was incorrect.

IV. CONCLUSION

For the foregoing reasons, we affirm the decision of the Tax Court.

AFFIRMED.

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