1 Unless otherwise indicated, subsequent section references are

to the Internal Revenue Code in effect for the year in issue, and

Rule references are to the Tax Court Rules of Practice and

Procedure.

T.C. Summary Opinion 2006-65

UNITED STATES TAX COURT

GEORGE B.N. AYITTEY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20837-04S. Filed April 26, 2006.

George B.N. Ayittey, pro se.

Scott A. Hovey, for respondent.

POWELL, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463.1 The decision to be entered

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

be cited as authority.
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2 Petitioner concedes that he received other income of $1,000, a

distribution from an individual retirement account of $24,792,

income from a discharge of indebtedness of $4,696, and interest

income of $36. On his 1999 Schedule A, Itemized Deductions,

petitioner claimed a deduction of $21,042.98 for miscellaneous

expenses. Petitioner concedes that $11,737 of those deductions

are not allowable. Respondent concedes that petitioner is

entitled to an additional prepayment credit of $4,958. 

Respondent determined a deficiency of $16,319 and a penalty

under section 6662 of $2,272.20 in petitioner’s 1999 Federal

income tax. The issue is whether petitioner is entitled to a

casualty loss deduction under section 165 in an amount greater

than $9,448 allowed by respondent.2 Petitioner resided in

Lorton, Virginia, at time the petition was filed. 

Background

The facts may be summarized as follows. Petitioner is a

professor of economics. In addition, he has published books and

articles concerning Africa. In February, 1999, petitioner’s

office at the university at which he taught was destroyed by

fire. Included in the destruction were items of personal

property belonging to petitioner. On his 1999 Federal income tax

return, petitioner claimed a casualty loss deduction for the

following:

Books on economics $2,000

Books by “famous authors” 1,000

Books on Africa 5,000

African journals & magazines 3,000

Book manuscript 15,000

Memorabilia (awards, plaques, etc.) 3,000

Briefcases, fans, etc. 2,000

Computer printer 250

Labor/inconvenience/distress 2,000
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Some of the books were given to him, as were the items shown as

memorabilia. Petitioner did not seek any expert advice

concerning the value of the items destroyed. Petitioner has no

records, receipts, or other documents concerning the cost of any

of the items destroyed nor did petitioner attempt to reconstruct

such cost. Petitioner did not seek any professional advice

concerning the preparation of his 1999 tax return. Petitioner

received $12,500 from the university’s insurance company for the

loss that he suffered from the fire. 

Upon audit, respondent allowed a casualty loss deduction of

$9,448 and disallowed the remainder of the deductions claimed on

petitioner’s return.

Discussion

Generally, the burden of proving that respondent’s

determination is incorrect is on petitioner. Section 7491(a)

provides, in limited circumstances, that the burden shifts to

respondent. Petitioner does not fall within these limited

circumstances and the burden of proof is on petitioner.

Casualty Loss

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

during the taxable year and not compensated for by insurance or

otherwise.” The general rule for determining the amount of a

casualty loss, whether or not incurred in a trade or business or

in a transaction for profit, is the lesser of (i) the fair market

value before the casualty reduced by the fair market value after
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the casualty or (ii) the adjusted basis determined under section

1.1011-1, Income Tax Regs. Sec. 1.165-7(b)(1), Income Tax Regs. 

The regulation also provides

However, if property used in a trade or business or held for

the production of income is totally destroyed by casualty,

and if the fair market value of such property immediately

before the casualty is less than the adjusted basis of such

property, the amount of the adjusted basis of such property

shall be treated as the amount of the loss for purposes of

section 165(a). [Id.]

For purposes here, the adjusted basis in the property destroyed

is the cost of such property. Secs. 1011 and 1012.

The parties apparently agree that, at least as far as the

majority of the items are concerned, the property destroyed was

used in a trade or business or was held for the production of

income and was totally destroyed. We, therefore, are concerned,

pursuant to section 1.165-7(b)(1), Income Tax Regs., with

petitioner’s bases or costs of the items destroyed. Petitioner,

however, has not produced any evidence as to what his bases or

costs in the various items may have been. Indeed, while they may

have had value to petitioner, it is clear that the memorabilia

had no costs to petitioner, and petitioner would have no bases in

these items. With respect to what petitioner describes as

“Labor/Inconvenience/Distress”, as we understand petitioner’s

testimony, the deduction was for mental upset, having to prepare

new lecture notes, etc., and for teaching. These are not items

of property the losses of which are deductible as casualty

losses.
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Turning to the item described as a book manuscript,

petitioner testified that the manuscript was the foundation for

three future books. He determined that it had a fair market

value of $15,000 because he had received advances from publishers

for previous books. But, petitioner admitted that he had no

record of the cost or expenses (apart from his time and labor) in

the creation of the manuscript. In short, he has not established

that he had a cost basis in the manuscript.

With regard to copies of magazines, journals, and books,

again petitioner has no records concerning the costs of these

items. Furthermore, petitioner admits that he would have

deducted the costs of at least some of the magazines, journals,

and books in prior years. We note also with respect to the other

claimed deductions, including particularly the manuscript, any 

costs would appear to have been deducted in prior years. See,

e.g., sec. 263A(h); see also Hadley v. Commissioner, 819 F.2d 359

(2d Cir. 1987).

Turning to the remainder of the items claimed as a casualty

loss deduction, even if we assume that petitioner had bases or

costs in the amounts claimed, petitioner collected $12,500 from

insurance, and respondent allowed a casualty loss deduction of

$9,448. Under these circumstances, we fail to understand how the

bases or costs of these items would be deductible. We sustain

respondent’s determination with respect to the casualty loss

deduction. 
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Section 6662--Penalty

Section 6662(a) provides a penalty in an amount equal to 20

percent of the portion of any underpayment attributable to, among

other things, “Any substantial understatement of income tax”. 

Sec. 6662(b)(2). A substantial understatement of income tax

exists “if the amount of the understatement for the taxable year

exceeds the greater of--(i) 10 percent of the tax required to be

shown on the return for the taxable year, or (ii) $5,000.” Sec.

6662(d)(1)(A). For purposes of section 6662(a), an

understatement may be reduced if there is “substantial authority”

for the position taken, or if the facts were adequately disclosed

in the return and there was a “reasonable basis” for the position

taken. Sec. 6662(d)(2)(B). Further, no penalty will be imposed

if there was a reasonable cause for the understatement and the

taxpayer acted in good faith. Sec. 6664(c). There is no

substantial authority for the position taken here. The facts

concerning the unreported items of income that petitioner

conceded, supra note 2, were obviously not disclosed and are not

subject to the section 6662(d)(2)(B) exception from the penalty. 

While petitioner did disclose the fact that there was a casualty

loss deduction, we cannot say there was a reasonable ground for

the amount of the deduction claimed as a loss. Petitioner made

no attempt to ascertain the correct tax treatment of the items

composing the casualty loss deduction claimed. A “reasonable”

basis or reasonable cause cannot be transmuted from intentional
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ignorance. We sustain respondent’s determination of the section

6662(a) penalty.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

under Rule 155.