T.C. M em o . 2 0 1 9 -4 2

UNITED STATES TAX COURT
KEITH A. BOLLES AND SHELLEY R. BOLLES, Pet i t io n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 1 9 97 -1 4
. Fi l edAp ri l 2 5 , 2 0 1 9
.

Ed i th Fay e M o at es , fo r p et i t i o n ers . G. Ch ad Bart o n , fo r res p o n d en t
.

M EM ORANDUM FINDINGS OF FACT AND OPINION PARIS, J u d g e: Ina n o t ice o f d efi ci en cy d at edFeb ru ary 2 1 , 2 0 1 4 , res p o n d en t d et erm i neda d efi ci en cy i n Fed eral i n co m e t ax o f $ 1 6 ,7 4 5 fo r p et i t i o n ers ’ t ax y ear 2 0 1 0
. 1 Aft er co n ces s i o n s , the i s s u es fo r d eci s io n are:

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al (co n ti n u ed ...)- 2
-

[* 2 ] (1 ) wh et h er p et i t i o n ers fai l edt o rep o rtg ro s s recei p t s fro m M r. Bo l l es ’
m as o n ry b u s i n es s o n Sch edu l e C, Pro fi to r Lo s s Fro m Bu s i n es s, (2 ) wh et h er p et i t i o n ers are en t i t l ed t o d edu ct i o n s fo r co n tract l ab o r ex p en s es an dad ju s tm en t s fo r co s to f g oo d s s o l dfo r M r. Bo l l es ’ m as o nry b u s in es s , (3 ) t h e am ou n t o f g u aran teedp aym en t s M r. Bo l l es recei v edfro m Ok l ah o m a Po wer Co n tract i n g , LLC (OPC), (4 ) wh et h er p et i t i on ers are en t i t l ed t o a car an dtru ckex p en s e d educt i o n fo r m i l eag e dri v en fo r OPC, an d(5 ) wh et h er p et i t i on ers are en t it l edt o a
cas u al ty l o s s d edu ct io n. 2 FINDINGS OF FACT So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Th e fi rs t
s t ip u l at i o n o f fact s an dth e rel at edex h i bi t s are i n co rp o rat edh erei n b y th i s referen ce. Pet i t io n ers res i d edi n Ok l ah o m a wh enthey t i m el y fi l edthei r p et i t i o n .

1 (...co n t in u ed ) Rev enu e Co de i n effect fo r t h e y ear i n i s s u e, an d al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.

2 Pet i t i on ers co n ced e that : (1 ) t h ey are n oten t i t l edt o th e ren t/ l eas e d educt i o n o f $ 4 , 5 1 2 fo r 2 0 1 0 cl ai m edo n a s eco n dSch edu l e C fo r OPC; an d (2 ) t h e g u aran teedp aym en ts M r. Bo l l es recei v ed fro m OPC s h o u l dh av e b een rep o rt edo n Sch edu l e E, Sup p l em en t al In co m e an dLo s s , i n st eado f Sch edul e C. Th e p art i es ag ree t h atM r. Bo l les s o ldh i s i n t eres ti n OPC i n 2 0 1 0 ata g ai n o f $ 1 5 ,0 0 0 an dth atth e g ai n i s t ax edas a cap i t al g ai n . Pet i t i o ners fai l edt o rep o rtth e $ 1 5 ,0 0 0 g ai n o n Sch edu l e D, Cap i t al Gai n s an dLo s s es . Th es e co nces s i o ns are b i n d i n g i n th e Ru le 1 5 5 co m p u t at i o n s .- 3
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[* 3 ] Back g ro u n d Pet i t i o ners m arri ed i n 1 9 8 5 . Duri n g the co u rs e o f t h ei r m arri ag e, p et i t i o n ers h ad th ree s on s , two o f wh o m th ey cl ai m edas d ep en d en t s o n th ei r Fed eral i n co m e t ax return fo r 2 0 1 0. M rs . Bo l l es was a h o m em ak er an dM r. Bo l l es was trai n edas a
m as o n . In th e m i d t o l at e 1 9 9 0 s p et i t i o n ers an dth e o wn ers o f a d et eri o rat ed
res i den ce o n Ru n n i ng Deer Ro ad(Ru n n i n g Deer p ro p ert y ) ag reedth at p et i t i o n ers
wo u l dp u rch as e t h e Ru n n i n g Deer p ro p ert y aft er ren o v at i n g i t t o th e p o i ntwh ere i t
wo u l dqu al i fy

fo r a res i d en ti al m o rt g ag e o f $ 1 08 ,0 0 0
. Th e Ru n n i ng Deer p ro p ert y
was a 4 .2 7 -acre l o ti n Cl ev el an dCo un ty , Ok lah o m a, co n t ai n i n g an ap pro x i m at el y 2 ,0 00 -s qu are-fo o t h o u se, a 5 1 2 -s quare-fo o ti n -g ro u n dp oo l , an da p o o l h ou s e. Ov er t h e n ex t1 0 t o 1 5 y ears , p et i t i o n ers rep laced th e h o u s e ro o f, d eal t wi th t erm i t es , fi x eds tru ctu ral p ro b l em s , p o u redn ew co n cret e, l ai d s t o n e wo rk , b u i l tan
o u t d o o r p at i o wi th a cu s t o m fi rep l ace, rep laced th e p o o l l in er, fi x edup the p o o l h o u s e, an d ren o v at edp art o f t h e k i t ch en . Pet i t i o ners d i d th e wo rko n th e p ro p ert y th em s el v es wh ere M r. Bo ll es ’ s k i l l s as a m as o n were u s efu l . In2 0 0 8 th e Ru n n i n g Deer p ro pert y

qu al i fi edfo r a $ 1 0 8 ,0 0 0 m o rt gag e, an d p et i t i o n ers p u rch as edth e p ro p erty . In2 0 1 0 th ey

b ui lta 3 0 - b y

4 0 -fo o t s h ed(3 0 x 4 0 s hed ) fo r $ 7 ,2 0 0
.- 4
-

[* 4 ] OnM ay

1 0 , 2 0 1 0 , an EF5 t o rn ad o 3 s wep tth ro u g h Cl ev el an dCo u n ty . 4 A
n ei g h b o r’ s h o u s e was l i ft edfro m i t s fo u n d at i o n an ddro pp edo n p et it i o n ers ’ h o u s e, d es tro y in g b ot h. Pet i t i o n ers ’ i ns u ran ce co m p an y d et erm i n ed th atth ei r h o u s e was a t ot al lo s s . Aft er t h e ex t en s i v e cl ean up o f t h e Ru n ni n g Deer p ro p ert y , th e o n l y
rem ai n i n g fi x tu re was th e co n cret e s l ab fo r t h e 3 0 x 4 0 s h ed
. Pet i t i o n ers ’ i n s u ran ce co m

p an y p ai dthem

$ 2 3 5 ,5 26 .5 0 fo r t h e l o s s o f t h ei r h o u s e an dfo r p o o l

3 AnEF5 t o rn ad o o n th e En h an cedFu ji t a s cal e h as wi n dg u sts p eed s o v er 2 0 0 m i l es p er h o u r an dcan cau s e t h e h i g h es td eg ree o f d am ag e t o a o n e-fam i l y res i den ce. Th e ex p ect edd am ag e i s th e “ [d ] es tru ct i o n o f en gi n eeredan d/ o r wel l co n st ru ct edres i d en ce; s l ab s wep tcl ean ”. NOAA/ Nat i o nal W eat h er Serv i ce, En h an cedF Scal e fo r To rn ad o Dam ag e, h t tp s: //www.s p c.n oaa.g o v / efs cal e/ ef-s cal e.h t m l (l as t v i s i t ed Ap ri l 3 , 2 0 1 9 ); NOAA/ N at i o n al W eat h er Serv i ce, On ean d Two -Fam i l y

Res i d en ces (FR1 2 ), h t tp s : //www.s p c.n o aa.g o v/ efs cal e/ 2.h t m l (l as t v is i t edAp ri l 3 , 2 0 1 9 ).

4 OnM ay 2 4 , 2 0 1 0, then Pres i d en tOb am a d ecl aredthata m ajo r d i s as t er ex i s t edi n th e St at e o f Ok l ah o m a affect i n g i n d i v i du al s an dh o u seh o l d s i n Cart er, Cl ev el an d , M cIn t o s h , Ok fu s k ee, Ok l ah om a, Po t t awat o m i e, an dSem i n o l e co u n t i es . Pet i t io n ers ’ res i d en ce was am o n g th e 2 8 2 res i d en ces th atwere d es tro y ed
. FEM A, Ok l ah o m a Sev ere St o rm s , To rn ad oes , an d St rai gh t -Li n e W i nd s (DR-1 9 1 7), h t tp s : //www.fem a.g o v / d is as t er/ 1 9 17 (l as t v is i t edAp ri l 3 , 2 0 1 9 ); FEM A, Ok l ah o m a - Sev ere St o rm s , To rn ad o es , an dSt rai g ht -Li n e W i n ds , FEM A-1 9 1 7
- DR, Decl aredM ay

2 4 , 2 0 10 , h t tp s: //www.fem a.g o v /p d f/ news /p da/ 1 9 1 7 .p df (l as t v i s i t edAp ri l 3 , 2 0 1 9).- 5
-

[* 5 ] an d d eb ri s cl ean up . 5 Th e $ 2 3 5 ,5 2 6 .5 0 d i dn o ti n cl u de t h e co s to f rep l aci n g th e 3 0 x 4 0 s hed , th e p o o l h o u s e, o r an y o f t h e o th er o ut d o o r fi x tures . Pet i t i o ners were al s o p ai d$ 9 8 ,4 51 , th e l i m i to n t h ei r i n s u ran ce p o l i cy fo r p ers o n al p ro p ert y , fo r t h e co n t en t s o f t h ei r h o u s e, p o ol h o us e, 3 0 x 4 0 s h ed , an d b ack y ard . Th e l i s to f p ers o nal p ro p ert y s ub m i t t edt o the i n s u ran ce co m p an y fi l ls 3 2 p ag es an di den t i fi es h u n dred s o f i t em s th e t o rn ad o d es tro y ed . So m e d es cri p t io n s are s p eci fi c, e.g ., “ Trai ler M ag i c 2 Ho rs e Sl an tTrai l er”, wh i l e o th ers
are m o re g en eral , e.g ., “ Po o l St i ck s ”. Fo r each i t em (o r cat eg ory

o f i t em s ) l i s t ed
o n th e i n v en t ory , th e i ns u ran ce co m pan y m ad e en tri es i n d es i g nat edco l u m n s fo r: (1 ) qu an ti ty

o f i t em s d es tro y ed , (2 ) ag e o f t h e i t em , (3 ) o ri g i n al co s t , an d(4 ) act u al
cas h v al u e (i .e., rep l acem en t co s t ). Th e i n s u ran ce co m p an y v al u edth e l i s to f p ers o n al p ro p ert y

b efo re d ep reci at i o n at$ 1 8 0 ,3 9 2 .9 9 an daft er d ep reci at i o n at $ 1 2 4 ,3 3 2 .7 6 --a 3 1% d ep reci at i o n rat e. Th atam o u n td i d n oti n cl u d e cl o th i n g , s h o es , o r acces s o ri es fo r p et it i on ers an dth ei r t wo d ep en d en ts o n s o r t h o se s o n s ’
s p o rt s g ear, el ect ro n i cs , an dt o y s .

5 Pet i t i on ers ’ i n s uran ce co m p an y v al u edthe co s to f rep l aci n g th ei r h o u s e an d d eb ri s cl ean up at$ 2 6 9 ,0 4 0 .7 0 . Itth en d edu ct ed“No n -Reco v erab l e Dep reci at i on ” o f $ 4 , 9 7 0 .3 7 , “ Ex ces s ” o f $ 2 7,5 4 3 .8 3 , an da d edu ct i b le o f $ 1,0 0 0 t o arri v e atth e “NetCl ai m ” o f $ 2 3 5 ,5 26 .5 0. Th e “NetCl ai m ” i n cl u d ed$ 2 0 ,5 7 1 .4 2 fo r d eb ri s cl ean up an d $ 3 4 ,3 8 5 .8 7 fo r ren o v at i o n s fo r p et i t i o n ers ’ rep l acem en th o u s e.- 6
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[* 6 ] Onth e b as is o f th e p rev io u s i n s u ran ce d o cu m en t s p et i t i o ners l at er creat eda l i sto f t h ei r d es tro y edp ers o n al p ro p ert y . Pet i t i o n ers u s ed s ch edu l es 1 2 , 1 3 , an d 1 4 --m en ’ s cl o th i n g , wo m en ’ s cl o th i ng , an d ch i l dren ’ s cl o thi n g --i n Pub l i cat i o n 5 8 4 , Cas u al ty , Di s as ter, an d Th eftLo s s W o rkb oo k(rev . J u n e 2 0 1 2 ), t o creat e
s o m e o f t h ei r l i s t . Onth o s e s ch edu l es p et i ti o n ers m ad e en tri es fo r (1 ) qu an t i ty o f i t em s , (2 ) co s to r o th er b as i s , an d(3 ) cas u al ty l o s s . Th ey

v al u edas o f i m

m ed i at el y b efo re t h e l o s s b o th o f t hei r d ep en d en ts o n s’ cl o thi n g , s h o es , an d acces s ori es at $ 4 ,5 6 6 , M r. Bo l les ’ cl o thi n g , s h o es , an dacces s o ri es at$ 3 , 4 5 5, an d M rs . Bo l l es ’ cl o th i n g , s h o es , an dacces s ori es at$ 5 , 6 4 0 . Th ey al s o v al uedas o f th att i m e t h ei r d ep en d en t s on s ’ s p o rt s g ear, 6 el ect ro n i cs , an dt o y s at$ 2 ,9 0 2 . Pet i t io n ers al s o h ad a Ch ev y z7 1 o ff-ro adp i ckup t ru ck , an o ldJ eep , an da h o rs e t rai l er t h at were d es tro y edb y th e t o rn ad o b u tth ati n s u ran ce d i dn o tco v er. Pet i t i o ners p u rch as eda rep l acem en th o us e an dp ro p ert y fo r $ 1 7 5 ,0 0 0 o n J u l y 1 4 , 2 0 1 0. M r. Bo l l es s p en tth e n ex ts ev eral m on th s ren o v at i n g t h e h ou s e an d ab at i ng m o l d . Pet i t i on ers ’ i n s u ran ce co m p an y ex t en d edth e l i m ito n th ei r
co v erag e t o p ay

th e $ 3 4 , 3 8 5
. 8 7 ren o v at i o n co s t
.

6 On e o f p et i t io n ers ’ s o n s was o n a b as eb al l t eam an dh ad co m

p et i t i o n qu al i ty g lo v es , b at s, an dcat ch er’ s g ear.- 7
-

[* 7 ] OPC M r. Bo l les , J as o n Bu rk s , Bran do n M o y er, an d M o nt e Ho l l an dfo rm edOPC,
a m ul t i m em b er l i m i t edl i ab i l i ty

co m pan y t ax ed as a p art n ers h ip fo r Fed eral i n co m e t ax p u rp o s es . 7 OnM arch 1 1 , 2 0 0 9 , M r. M o y er fi l edart i cl es o f o rg an izat i o n fo r OPC wi th th e Ok l ah o m a s ecret ary o f St at e. M r. M oy er an dM r. Ho l l an d
co n tri b u t edcas h i n ex ch an g e fo r t h ei r 2 5 % i n t eres t s . M r. Bu rk s an d M r. Bo l l es
co n tri b u t eds erv i ces i n ex ch an ge fo r t h ei r 2 5 % i nt eres t s . M r. Bo l l es al s o
co n tri b u t edth e u s e o f h i s 2 00 8 GM C t ru ckan dh i s Cat erp il l ar 2 8 7 s k i d s t eer l o ad er (s k i d l o ad er) wi th trai l er t o OPC. M r. Bo l l es k ep tthe t i t le an d fi nan ci n g o f th e GM C t ru ckan ds k i dl o ad er i n h is n am e, b u tOPC m ad e t h e m o n th l y p aym en ts
an d p ai dfo r fu el . M r. Bo l l es u s edan OPC d eb i t cardt o fu el h is GM C t ru ck , o t h er fo rem en ’ s tru ck s, h i s s k i dl o ad er, an dan y o th er m ach i n ery

u s edo n a jo b
. OPC p erfo rm edp o wer l i n e s erv i ces i n Kan s as , Io wa, an d Ok l ah o m a. OPC
co n tract ed wi th el ect ri c p ro v i d ers t o i n s t al l ab o v eg ro u ndan du n derg ro u n dp o wer l i nes an dp o l es (reg u l ar co n tract s ) an d rep ai r d o wn edp o l es an dp o wer l i nes fro m
s t orm s (s t o rm

co n tract s ). M r. Bu rk s an dM r. Bo l l es act edas fo rem en fo r crews p erfo rm i n g wo rkfo r OPC. OPC ag reedt o g u aran t eedp aym en t s fo r t h ei r s erv i ces .

7 OPC i s n otan en t i ty

s ub jectt o th e TEFRA p art ners h i p au di tru l es b ecau s e i t had1 0 o r fewer m em

b ers wh o were al l Un i t edSt at es p ers o ns du ri n g 2 0 10 . See s ec. 6 2 31 (a)(1 )(B).- 8
-

[* 8 ] If t h ey

i n s t al l edp o les an dp o wer l i n es u n d er a reg u l ar co nt ract , OPC p ai d th em $ 1 ,0 0 0 p er week . If th ey rep ai redp ol es an d p o wer l i n es u n d er a s t o rm
co n tract , OPC p ai d th em

$ 1 ,7 5 0 p er week
. M r. Bo l l es ’ wo rk edatl eas t5 0 h o u rs p er weekan do ft en l o n g er. In ad d i ti o n t o th e fi x ed p aym en t s o n reg u l ar an ds t o rm
co n tract s, OPC p ro vi d eda fi x edp aym en to f $ 2 50 fo r m eal s an di n ci d en t al s fo r each weekM r. Bo l l es wo rk edo u to f t o wn . In 2 0 1 0 OPC ren t edtwo h o u s es i n Kan s as fo r t he crew t o s tay atwh i l e o n a reg u l ar co n tract , b u tM r. Bo l l es p ai dth e l o cal u t i l it i es fo r th e ren t al s . In2 0 1 0 OPC al s o p ai d fo r t h e 1 5 -m an crew t o s t ay ata m o t el wh en th ey

were o n a s t o rm
co n tract
. Th e m o t el wo u l dn o tt ak e OPC’ s b u s in es s ch eck , s o M r. Bo l les wro t e an OPC ch ecko u tt o h i m s el f, cas hedi t , an d p ai dth e m o t el i n cas h fo r t h e en t i re crew. Fro m J an u ary 6 t o J u n e 4 , 2 01 0 , OPC i s s u edt o M r. Bo l l es 2 6 ch eck s t o t al i n g $ 5 1 ,9 7 0 .3 1 . Sev en o f t h o s e ch eck s i n cl u dedrei m b u rs em en ts fo r OPC
ex p en s es t o t al in g $ 2,1 5 0 t h atM r. Bo l l es p ai d o n i t s b eh al f. 8 Sev en t een o f t h o s e ch eck s i n cl u d edfi x edp aym en t s fo r m eal s an di n ci d en t al s fo r each weeko f o u t -o ft o wntrav el t o t al i n g $ 4 ,2 5 0 . Aft er d edu ct in g th e ex pen s e rei m b u rs em en ts , M r. Bo l les ’ g u aran t eed p aym en t s t o t al ed$ 4 9 ,8 2 0 .3 1
.

8 In ad d i t i o n t o p ay i n g t h e u t i l i t i es o f OPC crew ren t al p ro p ert ies , M r. Bo l l es o ft en p u rch as edl u n ch fo r t h e OPC crews t o m i n i m i ze d o wn t i m e.- 9
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[* 9 ] OPC h ada l o n g -t erm co n tract wi th an el ect ri c co o p erat iv e i n Kan s as t o i n s t al l ab o v eg ro u n dp o wer l i n es . Atth e en do f t h e co n tract th e co op erat i v e cl ai m edOPC d i dn otp erfo rm o n th e co n tract . InM ay

an dth e b eg i n n in g o f J u n e 2 0 1 0 M r. Bo ll es an dM r. Bu rk s wen tt o Kan s as t o i nv es t ig at e t h e cl ai m . M r. Bo l les was p ai d $ 1 ,0 0 0 fo r each weekh e i n v es t i g at edi n Kan s as . Du ri n g th e co n tract d i s p ut e M r. M oy er o ffered t o p ay M r. Bo l l es an dM r. Bu rk s a t o t al o f $ 3 0 ,0 0 0 fo r t h ei r 2 5 % i n t eres t s i n OPC. On J u n e 1 7 , 2 0 1 0 , M r. Bo l les an dM r. Bu rk s s i gn edan “ Offer o f Sal e o f M em bers h i p In teres t s ” wh erei n each ag reedt o s el l h is 2 5% i nt eres tt o M r. M o y er an dM r. Ho l l an d
. OnJ u n e 1 7 , 2 0 1 0 , M r. M o y er an dM r. Ho l l an ds i g n edan “ Accep t an ce o f Offer” an d p ai dM r. Bo l les an dM r. Bu rk s $ 1 5 ,0 0 0 each fo r t h ei r 2 5 % i n teres t s i n OPC. Wh en M r. Bo l l es an dM r. Bu rk s s o l dth ei r co l l ect i v e 5 0% i n t eres t , OPC d i d
n o tcl o s e i ts t ax y ear. Si m i l arl y , OPC d i dn o ti s s u e a Sch edu le K-1 , Part n er’ s Sh are o f In co m e, Dedu ct i on s , Cred i t s , et c., t o M r. Bo l l es o r M r. Bu rk s fo r 2 0 1 0
. OnNo v em

b er 1 4, 2 0 1 3 , OPC fi l eda d el i n quen t2 0 1 0 Fo rm 1 0 6 5 , U.S. Retu rn o f Part ners h i p In co m e, rep o rt i n g a $ 5 5 ,5 5 9 l o s s . 9 Th ere were n o Sch edu l es K-1

9 Th e t erm i n at edp art ners h i p retu rn was du e o n th e 1 5 th d ay o f t h e 4 th m o n t h fo l l o w i n g th e s al e o f 5 0% o f t h e p art n ers h i p (wh i ch res u l t edi n i t s t erm i nat i o n ). See s ecs . 7 0 6 , 7 08 ; s ec. 1 .6 0 3 1 (a)-1 (e)(2 ), In co m e Tax Reg s .- 1 0 -

[* 1 0 ] at t ach ed t o i t s Fo rm 1 0 6 5 . OPC d i dn o tk eep b o ok s o r reco rd s fo r t h e p art n ers ’ cap i t al acco u n t s . 1 0 M as o n ry Bu s i n es s Aft er s el l i n g h i s i n t eres ti n OPC M r. Bo l l es s p en ts ev eral m o n th s cl ean i n g
up th e Ru n n i ng Deer p ro p ert y an dren o v at in g p et it i o n ers ’ rep l acem en t h o u s e. M r. Bo l les th en retu rn edt o h i s fo rm er t rad e o f m as o n ry wo rk , d o in g b u s i n es s u n d er b o th h is o wn n am e an dRedDi rtCo n tract i n g , LLC (RedDi rt ). He al s o wo rk ed wi th h is n ep h ew’ s co m

p an y , Fo u n d at io n Pro , LLC, d o i n g m as o n ry wo rk . As a
co n ven i en ce t o h i s n ep h ew, M r. Bo l l es h ads i g n at o ry au tho ri ty o n Fo u n d at i o n Pro ’ s b u s i n es s b an kacco u n tb u td i dn o trecei v e a d eb i tcard o r u se t he acco u n t
. 1 1 M r. Bo ll es ’ n ep hew d ep os i tedal l th e ch eck s i n to Fo u n d at i o n Pro ’ s b an kacco u n t
an d u s edth o s e fu n d s t o p ay b us i n es s ex p en ses an dp ers o nal ex p en s es . W i th th e
ex cep t i o n o f o n e ch eck , al l th e ch eck s d ep o s i t ed i n t o Fo u n d at i on Pro ’ s b an k
acco u n t w ere wri tt en t o t h e b u s i n es s . Th e o ne ex cep t i o n was en d o rs edas : “ Kei t h

1 0 Th e o nl y

d ocu m en ti n th e reco rdfro m OPC i s a p ro fi tan dl os s s tat em en t fro m J an u ary th ro u g h D ecem

b er 2 0 1 0 . Th ere i s n o p artn ers h i p ag reem en t , o p erat i n g ag reem en t , cap it al acco u n t s s t at em en t , o r an y o th er d ocu m en t at io n i n th e reco rdth atwo ul ds h o w M r. Bo l l es ’ b as i s i n OPC o r h o w OPC d et erm i n edh o w t o treat am ou n t s p ai dt o M r. Bo l l es .

1 1 Th e reco rdco n t ai n s Fo u n d at io n Pro ’ s b an kacco u nts t at em en t s fo r Sep tem b er, Oct ob er, No v em

b er, an dDecem

b er 2 0 1 0.- 1 1 -

[* 1 1 ] Bo l l es At tri b u t ab l e t o Fo u n d at i o n Pro Fo r Dep o s i tOn l y ”. Ch eck s t o p ay fo r M r. Bo ll es ’ m as o n ry

wo rk w ere wri tt en ei th er t o h im p ers o n al l y

o r t o RedDi rt
. Fo u n d at i o n Pro i s s u ed M r. Bo l l es o n e ch eckfo r $ 2 ,2 4 1 .1 7 fo r h is s erv i ces th ath e d ep os i t edi n t o p et i t i o n ers ’ jo i n tch eck i n g acco u n t
. M r. Bo l les recei v ed$ 9 ,9 2 6 .1 7 fo r h i s m as o n ry wo rk i n No v em

ber 2 01 0 an d $ 1 9 ,5 3 5 .8 7 i n Decem

b er 2 0 1 0, an dh e d ep o s i tedth e fo rm er i n to p et i t i o n ers ’ jo i n t b an k acco u n tan dth e l at t er i n t o RedDi rt ’ s b an kacco u n t . Duri ng Decem b er 2 0 1 0 1 2 RedDi rtp ai d $ 6 , 7 2 3
. 1 5 t o co n cret e s up p l i ers , b ri ck co m pan i es , an do th er
co n st ru ct i o n s up p l y

b u s i n es s es . RedDi rtal s o p ai d$ 6 ,3 5 4 .5 0 t o n i n e i n d i v i du al s fo r co n tract l ab o r i n Decem b er 2 0 10 . Al l b u to n e o f t h e p aym en t s fo r co n tract l ab o r were l es s th an $ 6 0 0
. M r. Bo l l es d i dn o ti s s u e an y Fo rm s 1 0 9 9 -M ISC, M i s cel lan eo u s In co m e, rep o rt i n g th e am o u n t s p ai d . M r. Bo ll es d i dn o t rep o rtan y
co s to f g o o d s s o l dfo r m at eri al s , n o r d i dh e d edu ctan y co n tract l ab o r ex p en s es o n th e 2 0 10 t ax retu rn . Tax Retu rn an d No t i ce o f Defi ci en cy Pet i t i o ners h i reda p ai dt ax retu rn p rep arer t o p rep are t hei r 2 0 1 0 Fo rm 1 0 4 0 , U.S. In d i v i dual In co m e Tax Retu rn . Th ey rep o rt edg ro ss recei p t s o f $ 2 0 ,2 2 8 an d

1 2 Th e reco rdco n t ai n s RedDi rt ’ s b an kacco u n t s t at em en t fo r o n l y Decem b er 2 0 1 0
.- 1 2 -

[* 1 2 ] t o t al ex p en s es o f $ 1 4 ,2 2 1 o n Sch edu l e C fo r M r. Bo l les ’ m as on ry b u s i n es s
an d g ro s s recei p t s o f $ 45 ,1 21 1 3 an d t o t al ex pen s es o f $ 2 0 ,4 0 0 o n a s eco n d Sch edu l e C fo r OPC. Th ey rep o rt edad

ju st edg ro s s i n co m e o f $ 1 4,0 6 5 an d cl ai m eda refu ndo f $ 4 ,6 9 8. Pet i t i o n ers ’ d i d n o t cl ai m co s t o f g oo d s s o l d , a d educt i o n fo r co n tract l ab o r ex p en s es , o r a d edu ct i o n fo r a cas u al ty l os s o n t h ei r 2 0 1 0 Fo rm

1 0 40 . Si m i l arl y , p et i t i on ers d i d n o trep o rtan y o f Fo un d at io n Pro ’ s i n co m e o r cl ai m

an y d edu ct i on s rel at edt o Fo u n d at i o n Pro
. Res p o n d en ti s su edt o p et i t i o n ers a n o t i ce o f d efi ci en cy d at edFeb ru ary

2 1 , 2 0 1 4 , fo r t h ei r 2 0 1 0 t ax y ear. Res po n d en td et erm i n ed , am o n g o th er t h i ng s , th at p et i t i o n ers (1 ) h adad d i t io n al g ro s s recei p t s o f $ 10 ,0 6 4 fro m M r. Bo l les ’ m as o n ry b u s i n es s , (2 ) were n o ten t i t l ed t o d edu ctcar an dtru ckex p en s es o f $ 15 ,1 0 6 fro m OPC, 1 4 an d(3 ) h adg uaran t eedp aym en t s o f $ 6 6 ,5 2 1 fro m OPC. 1 5 Th ro u gh a b an k

1 3 M r. Bo l l es d i dn otrecei v e a Sch edu l e K-1 . M r. Bo ll es cal l edM r. M o y er t o fi n do u tth e am o u nt OPC p ai dh i m .

1 4 Res p o nd en td i dn otd i sal l o w d edu ct i o n s fo r l eg al an d p ro fes s i o n al s erv i ces an d o ffi ce ex p en s es o n p et i t i on ers ’ Sch edul e C fo r OPC.

1 5 Th e n ot ice o f d efi ci en cy s t at es : “ W e ad

ju s t edy ou r g u aran t eedp aym en t s i n acco rd an ce wi th t h e ex am i n at i o n res u l t s o f t h e Part n ers h i p retu rn , Ok l ah o m a Po wer Co n tract i n g . ” Th e reco rdd o es n otrefl ectwh et h er t h e ad ju s t m en tt o o ki n t o acco u n t th atM r. Bo l l es ’ t ax y ear fo r OPC cl o s edo n J u n e 1 7 , 2 0 1 0 , an dthatOPC fi led a retu rnfo r th e en t ire 2 0 10 t ax y ear wi th o u t at t ach i n g Sch edu l e K-1 t o rep o rt M r. Bo ll es ’ s hare o f t h e p ro fi t s an dl o s s es o f OPC.- 1 3 -

[* 1 3 ] d ep o s it s an al y s i s res p o n den td et erm i n ed thatM r. Bo ll es recei v edg ro s s recei p t s o f $ 3 0,2 9 2 .0 4 fo r h i s m as o n ry b u s i nes s fo r 2 0 1 0
. OPINION I. M as on ry

Bu si n es s A. Un rep o rt edIn co m e Gen eral ly , th e Co m

m i s s i o n er’ s d et erm i n at i o n s s etfo rt h i n a n ot i ce o f d efi ci en cy

are p res u m edco rrect , an dth e t ax p ay er b ears th e b u rd en o f s h o wi n g th e d et erm i n at i o n s are i n erro r. Ru l e 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 9 3 3). Wh en a cas e i n v o l ves u n rep ort edi n co m e, t h e U.S. Co u rto f Ap peal s fo r th e Ten th Ci rcu i t , t o wh i ch th is cas e wo u l db e ap peal ab l e ab s en t a s t i p ul at i o n t o th e co n trary , s ee s ec. 7 4 82 (b ); Go l s en v . Co m m i s s i o n er, 5 4 T.C. 7 42 , 7 57 (1 9 7 0 ), aff’ d , 4 4 5 F.2 d9 8 5 (1 0 th Ci r. 1 9 7 1 ), h as h el dth atth e Co m m i s s i o n er’ s d et erm i n at i o n o f u n rep o rt edi n co m e i s en t i t l edt o a p res u m p t i o n o f co rrect n es s
o n ce s om e s ub st an t i v e ev i d en ce i s i n tro du cedd em o n s trat i n g th atthe t ax p ay er recei v edu n rep o rt edi n co m e, Un i t edSt at es v . M cM u ll i n , 9 4 8 F.2 d1 1 8 8 , 1 19 2 (1 0 th Ci r. 1 9 9 1 ). On ce t h e Co m m i s s i o ner i nt ro du ces s o m e s ub s t an t i v e ev i d en ce l i nk i ng th e t ax p ay er t o th e i n co m e, t h e p res u m p t i o n o f co rrect n es s ap p l i es an dth e b u rd ens h i ft s t o th e t ax p ay er t o p ro du ce s ub s tan t i al ev i d en ce o v erco m i n g i t . Id
.- 1 4 -

[* 1 4 ] Ban kd ep o s i t s are p ri m a faci e ev i den ce o f i nco m e. To k ars k i v . Co m m i s s i o n er, 8 7 T.C. 7 4, 7 7 (1 9 8 6 ); Es t at e o f M as on v . Co m m i s s i o n er, 6 4 T.C. 6 5 1 , 6 5 6 (1 9 7 5), aff’ d , 5 6 6 F.2 d2 (6 th Ci r. 1 9 7 7 ). Th e Co m m i s s i o n er i s n o t req u i redt o s h o w a l i k el y s o u rce o f i n co m e. See Es tat e o f M as o n v . Co m m i s s i o n er, 6 4 T.C. at 6 5 7
. Th e b an kd ep o s i t s m et h o d p res u m es th at al l
m o ney d ep o s i t edi n a t ax p ay er’ s b an kacco un tduri n g a g i v en p eri o dco n s ti tu t es t ax ab l e i n co m e, b u t th e Go v ern m en tm u s tt ak e i nt o acco u ntan y n o nt ax ab le s o u rce
o r d educt i b l e ex pen s e o f wh i ch i th as kn o w l ed g e. Di Leo v . Co m m is s i o n er, 9 6 T.C. 8 5 8 , 8 6 8 (1 9 9 1 ), aff’ d , 9 5 9 F.2 d 1 6 (2 dCi r. 1 9 9 2 ). Un l es s th e n o nt ax ab l e n atu re o f d ep o s i t s i s es t ab l is h ed , g ro ss i n co m e i n cl u d es d ep o s i t s t o b an kacco u n t s wh ere t h e t ax p ay er h as d o m i n io n an dco n tro l
o f t h e fu n d s . Co m

m is s i o n er v . Gl en s h aw Gl as s Co
. , 3 4 8 U.S. 4 2 6 , 4 3 1 (1 9 5 5 ); Dav is v . Un i t edSt at es , 2 2 6 F.2 d3 3 1 , 3 3 4 -3 3 5 (6 th Ci r. 1 9 5 5 ); M an zo li v . Co m m i s s i o n er, T.C. M em o . 1 9 8 8 -2 9 9 , aff’ d , 9 0 4 F.2 d1 0 1 (1 s t Ci r. 1 9 9 0). Th e
u s e o f m o n ey

fo r p ers o n al p u rp o s es i s an i n d i cat i o n o f d o m i n i o n an d co n tro l
. W o o d s v . Co m

m i ss i o n er, T.C. M em o . 1 9 8 9-6 1 1 , aff’ dwi th ou tp ub l i s h edo p i n i o n, 9 2 9 F.2 d7 0 2 (6 th Ci r. 1 9 9 1). M ere d o m i n io n o ver m o n ey d o es n o tb y

i t s el f
co n st i tu t e t ax ab l e i n co m e. See Bri t t i n g ham v . Co m m is si o n er, 5 7 T.C. 9 1, 1 0 1 (1 9 7 1); s ee al so Co m

m i s s i o n er v . W i l co x , 3 27 U.S. 4 0 4 , 4 0 7 (1 9 4 6). Rat her, t h e- 1 5 -

[* 1 5 ] s t atu s as t ax ab le i n co m e o f an y real o r n o m i n al i n creas e t o weal th m u s tb e
v i ewed acco rd i n g t o t he fact s an dci rcu m s t an ces o f each p art icu l ar cas e. See, e.g ., Rei d v. Co m

m is s i o n er, T.C. M em o . 1 9 8 9 -4 0 7 . If a t ax p ay er can s h o w thath e
accru edn o g ai n o r b en efi t an d h adm ere d o m i n io n o ver t h e fu nd s wi th ou t co n tro l , h e co ul dreb u t th e p res u m p ti on th atthe fu n ds are t ax ab l e t o h i m . See Bri t t i n g h am
v . Co m m i s s i o n er, 5 7 T.C. at1 0 1 ; Kram er v . Co m m i s s i o n er, T.C. M em o . 1 9 9 6
- 5 1 3
. Gro ss Recei p t s M r. Bo l les rep o rt edg ro ss recei p t s o f $ 2 0 ,2 28 o n Sch edu l e C fo r h i s
m as o n ry b u s i n es s fo r 2 0 1 0 . Th ro u g h a b an k d ep o s i ts an al y s i s res po n d en t d et erm i n edth atM r. Bo l les recei v edg ro ss recei p t s o f $ 30 ,2 9 2
. 0 4 fo r h i s m as o n ry b u s i n es s fo r 2 0 1 0 . Onb ri ef res p o n den targ u es thatM r. Bo ll es actu al ly recei v ed g ro s s recei p ts o f $ 3 9 ,9 63 .0 4 an d , th erefo re, t he ad ju s t m en tt o i n co m e o f $ 1 0 ,0 6 4 i n the n o t i ce o f d efi ci en cy s h o ul db e s u s t ai n ed
. Res p o n d en ti n tro du cedi n t o ev id en ce Fo u n d at i o n Pro ’ s b an kacco u nt
s t at em en t s fo r Sep t em

b er t hro ug h Decem

b er 2 0 1 0 , an d t h e p art i es s t i p u l at edRed Di rt ’ s b an kacco u n ts t at em en tfo r Decem ber 2 0 1 0 an d p et i t io n ers ’ jo in tb an k
acco u n t st at em en t s fo r J u l y , Sep t em b er, No v em

b er, an d Decem

b er 2 01 0
.- 1 6 -

[* 1 6 ] Res p o nd en t as s ert s th atal l th e ch eck s d ep o s i t edi n t o Fo u nd at i o n Pro ’ s b an k
acco u n t are i n co m e t o M r. Bo l l es . Fo u n d at i o n Pro was Mr. Bo l l es ’ n ep h ew’ s co m p an y . Hi s n ep h ew co n tro l l ed Fo u n d at i o n Pro ’ s b an kacco un t, an dh e d ep o si t edal l th e ch eck s an ds p en t th e fu n d s atwi l l . M r. Bo l les h ads i g nat o ry au th o ri ty o n Fo u nd at i o n Pro ’ s b an k
acco u n t fo r h i s n ep h ew’ s co n v en i en ce, b u t h e d i dn o th av e a d eb i t cardo r s p en d
an y o f t h e fu n d s i n t h e b an k acco u n t . Th e o n e ch eck p ay ab l e t o M r. Bo l les was d ep os i t edi n Fo u n d at i o n Pro ’ s b an kacco u n t an di s en d o rs edas : “ Kei th Bo l l es At tri bu t ab le t o Fo u n d at i o n Pro Fo r Dep o s i tOn l y ”. Th e Co u rti s rel u ct an tt o v i ew M r. Bo ll es ’ s ig n at o ry

au th o ri ty o v er th e Fo u n d at i o n Pro b an kacco u ntas a
s i gn i fi can tfact o r i n d et erm i n i n g wh et h er t h e ch eck s d ep o si t edco n s t i tu t e i n co m e t o h i m . Onth i s reco rdM r. Bo ll es ’ n ep hew al s o h ads i g n at ory au tho ri ty o v er Fo u n d at i o n Pro ’ s b an kacco un t, m ad e al l th e d ep o si t s , an du sedal l th e fu n d s at wi l l . Pet it i o ners ’ i n creas e i n weal th was th e o n e ch eckFo u n d at i o n Pro i s s u edM r. Bo l les fo r h i s s erv i ces , wh i ch was d ep o s i t edi n t o thei r jo i n tb an kacco u nt
. Th erefo re, p et it i o n ers h av e reb u t t edth e p res u m p ti on o f i n co m e fo r an y

d ep o s i t s i n Fo u n d at i o n Pro ’ s b an kacco un t. Res p o n d en ti s en t i t ledt o t h e p res u m p t io n o f i n co m e fo r t h e fu n d s d ep o s i t ed i n t o p et i t i o n ers ’ jo i n tb an k acco u n tan dRed Di rt ’ s b an kacco u ntt ot al i n g- 1 7 -

[* 1 7 ] $ 9 ,2 34
. 0 4
. 1 6 M r. Bo l les recei v edg ro ss recei p t s o f $ 9,9 2 6 .1 7 thath e d ep os i t edi n t o the jo i n tb an kacco u n tan dg ro s s recei p t s o f $ 1 9 , 5 35 .8 7 th ath e d ep os i t edi n t o RedDi rt ’ s b an kacco u n t fo r a t o t al o f $ 2 9 ,4 6 2.0 4 . Pet i t i o ners rep o rt edg ro ss recei p t s o f o n ly $ 2 0 ,2 2 8 o n th ei r 2 0 1 0 Fo rm 1 0 4 0 . Pet i t i on ers cl ai m th atth e $ 9 ,2 3 4 .0 4 d i fferen ce b et w een th e recei v edan dd ep o s it ed g ro s s recei p t s was du e t o a fam i l y m em b er’ s p ay i n g t h em

$ 1 0 ,0 0 0 t o p u rch as e t he Ru n n i n g Deer acreag e aft er t h e t o rn ad o cl ean up. Ho w ev er, p et it i on ers co n t i n u e t o ret ai n t i t l e t o the p ro p ert y an dh av e n o ttran s ferred t i t l e t o th e fam i ly m em b er. Ad d i t i o n al l y , M r. Bo ll es t es t i fi edth at$ 2 7 ,2 6 2
. 0 4 was p aym en t s fro m m as o n ry
wo rkan da referral fee. Th e rem ai n i n g $ 2,2 0 0 cam e fro m two cas h d ep o s i t s i n t o Red Di rt ’ s b an k acco u n t . Pet i ti o n ers h av e n o treb u t t edth e p res u m p t i o n th atth e $ 2 ,2 0 0 cas h d ep o s i t s are g ro s s recei p t s . See Di Leo v . Co m m i s s i o n er, 9 6 T.C. at 8 6 8 . Th e Co u rtco n cl ud es th atp et i ti o n ers h adu n rep o rt edg ro s s recei p t s o f $ 9 ,2 3 4 .0 4
. B. Sect io n 1 6 2 Sect io n 1 6 2 (a) al l o ws as a d edu ct i o n al l o rd i n ary an dn eces s ary

ex p en s es p ai do r i n cu rred i n carry in g o n an y act i v i ty thatco n s ti tut es a t rad e o r b us i n es s . To

1 6 W i th res p ectt o an ad d it i o n al $ 80 0 cas h d ep os i ti n p et i t i o ners ’ jo i n tb an k acco u n t , p et i ti o n ers h av e reb u t t edth e p res u m p t i o n thatth e d ep os i twas i n co m e b ecau s e a fam i l y

m em ber g av e t h em

th e cas h t o h el p th em

aft er t he t o rn ad o.- 1 8 -

[* 1 8 ] b e “ o rd i nary ” t h e tran s act i o n th atg i v es ri s e t o th e ex p en s e m u s tb e o f a
co m m o n o r freq u en to ccu rren ce i n th e t y p e o f b us i n es s i nv o lv ed . Dep u ty v . du Po n t , 3 0 8 U.S. 4 8 8 , 4 9 5 (1 9 4 0 ). To b e “ n eces s ary ” an ex p en s e m us tb e

“ ap p ro p ri at e an dh el p fu l ” t o th e t ax pay er’ s b u s i n es s . W el ch v . Hel v eri ng , 2 9 0 U.S. at1 1 3 . Ad d i t i o n al l y , fo r a d edu ct i o n u n d er s ect i on 1 6 2 , th e ex p en d i ture m u s t b e “ d i rect l y

co n n ect edwi th o r p ert ai n i n g t o th e t ax p ay er’ s trad e o r b u s i nes s ”. Sec. 1 .1 62 -1 (a), In co m e Tax Reg s . Gen eral ly , th e t ax p ay ers h av e t he b u rd en t o p ro ve t h ei r en t i t l em en tt o an y d educt i o n an d m

u s tm ai n tai n ad equ at e reco rd s t o s ub s t an t i at e t h ei r d edu ct i o n s . Ru l e 1 4 2 (a); INDOPCO, In c. v . Co m m i s s i o n er, 5 0 3 U.S. 7 9 , 8 4 (1 9 9 2 ); W el ch v . Hel v eri n g , 2 9 0 U.S. at1 1 5
. RedDi rt ’ s b an k acco u n ts t at em en tfo r Decem b er 2 0 10 co n t ai n s co p i es o f ch eck s wri t t ent o i nd iv i du al s wi th a “ l ab o r” n o t at i o n o n th e m em o l i n e. As t o th o s e ch eck s , th e Co u rth as fo u n dth at M r. Bo l l es p ai d n i n e i n d iv i dual s $ 6 , 3 5 4 .5 0 i n Decem b er 2 0 1 0
. Acco rd i n g l y , th e Co u rth o l d s th at p et i t io n ers m ay d edu ct $ 6 ,3 5 4 .5 0 o f co n tract l ab o r ex p en s es fo r M r. Bo l l es ’ m as o n ry b u si n es s fo r 2 0 1 0
. C. Co s to f Go o d s So l d Co s to f g o od s s o l d i s an o ffs ett o g ro s s recei p t s i n d et erm i n i ng b u s i n es s i n co m e. Sec. 1 .6 1 -3 (a), In co m e Tax Reg s . A t ax p ay er m u s tk eep s u ffi ci en t- 1 9 -

[* 1 9 ] reco rd s t o s ub s tan t i at e an y am o u n t cl ai m ed as co sto f g o o ds s o ld . Wri g h t v
. Co m m i s s i o n er, T.C. M em o . 1 9 9 3 -2 7 ; s ee al s o M et ra Ch em Co rp . v . Co m m i s s i o n er, 8 8 T.C. 6 54 , 6 6 1 (1 9 8 7 ). RedDi rt ’ s b an k acco u n ts t at em en tfo r Decem b er 2 0 10 co n t ai n s co p i es o f ch eck s wri t t ent o co n cret e s up p l i ers an do th er co n st ru ct i o n s up p l y b u s in es s es wi t h

“ co n cret e” n o t edo n th e m em o l i n e o f s ev eral o f t he ch eck s . Th e ch eck s i n d i cat e th atRed Di rtp ai d$ 5 ,3 8 7 .8 0 fo r co n cret e, co n s tru ct i o n s up p l i es , o r m ach i n ery
ren t al . Ad d i t i o nal l y , Red Di rt ’ s b an k acco u n ts t at em en ts h ows th ati tp ai d $ 1 ,3 3 5 .3 3 t o b ri cks up p l y co m p an ies an do ther co n s tru ct i o n s up p l y b u si n es s es . Co n s i s t en twi th th o s e ch eck s , th e Co u rth as fo u n d t h atRedDi rtp ai d$ 6 ,7 2 3 .1 3 t o
co n cret e s up p l iers , b ri ckco m p an i es , an do th er co n s tru ct i o n s up p l y b u s in es s es . Acco rd in g ly

as t o tho s e i t em s , th e Co u rth o l d s th atp et i t i o n ers m ay cl ai m $ 6 ,7 2 3 .1 3 as co s to f g oo d s s o l dfo r M r. Bo l l es ’ m as o nry b u s i n es s. II. OPC A. Gu aran t eedPaym en t s Paym en t s a p art ner recei v es fro m a p art n ers hi p g en eral ly

fal l i n t o o n e o f th ree cat eg o ri es . Fi rs t , a p art n er m ay recei v e p aym en t s rep res en t i ng d i s tri b u t i o n s
o f h i s o r h er d is tri b u t i ve s h are o f p art ners h i p i nco m e. See s ec. 7 3 1 . Seco n d , a p art n er m ay

recei v e p aym en t s i n ci rcu m s t an ces i n wh i ch h e o r s h e i s n o t treat edas- 2 0 -

[* 2 0 ] a p art n er. Sec. 7 0 7 (a). An dth i rd , a p art n er m ay recei v e g u aran t eed p aym en t s fo r s erv i ces o r u s e o f cap i t al th atd o n o trep res en td i s tri b ut i o n s o f p art n ers hi p i n co m e. Sec. 7 0 7 (c). Sp eci fi cal l y , s ect i on 7 0 7 (c) p ro v i d es :

SEC. 7 0 7(c). Gu aran t eedPaym en ts .--To th e ex t en t d et erm i n ed wi th ou treg ardt o t h e i n co m e o f t h e p art n ers hi p , p aym en ts t o a p art n er fo r s erv i ces o r t he u s e o f cap i t al s h al l b e co n si d eredas m ad e t o o n e wh o i s n o t a m em

b er o f t h e p art n ers h i p , b uto n l y fo r t h e p u rp o s es o f s ect i o n 6 1 (a) (rel at i n g t o g ro s s i n co m e) an d , s ub jectt o s ect i o n 2 6 3 , fo r p u rp o s es o f s ect i on 1 6 2 (a) (rel at i n g t o trad e o r b us i n es s ex p en s es ). Wh et h er a p art n er i s act i n g i n h i s o r h er cap aci ty as a p artn er--rat h er t han i n h i s o r h er cap aci ty

as o n e wh o i s n o t a m em ber o f t h e p art ners h i p --wh i l e p ro vi di n g
s erv i ces t o h i s o r h er p art n ers h ip i s a fact u al d et erm i n at i o n. See Fal co n er v . Co m m i s s i o n er, 4 0 T.C. 1 01 1 , 1 0 1 5 (1 9 63 ); Cah i ll v . Co m m i s s i o n er, T.C. M em o . 2 0 1 3 -2 2 0
. Th e p art i es ag ree t h atM r. Bo ll es recei vedg u aran t eedp aym en t s fro m OPC, b u tth ey d i sag ree o n th e am o un th e recei v ed . Res p o n d en trel i es o n th e n ot i ce o f d efi ci en cy , wh i ch d et erm i n edth atM r. Bo l l es recei v edg uaran t eedp aym en t s o f $ 6 6 ,5 2 1
. 1 7 Pet it i o n ers arg u e t h atth e am o un trecei v edi n cl u d es rei m b u rs em en tfo r

1 7 Th e p art i es h av e n o w ag reedth ata $ 1 5,0 0 0 p aym en tfro m OPC was t o p u rch as e h i s i n t eres t , s ee s up ra n o t e 2 , an d wi l l n o tb e i n cl ud ed i n t h e b al an ce o f th e g u aran t eedp aym en t d i scu s s i o n .- 2 1 -

[* 2 1 ] ex pen ses p ai d o n b eh al f o f OPC an d thatM r. Bo ll es recei v edg u aran t eed p aym en t s o f o n l y

$ 4 5 ,1 2 1
. Th e Co u rth as fo u n d th atM r. Bo l l es recei v ed2 6 ch eck s t o t al i n g $ 5 1,9 7 0 .3 1 fo r g u aran t eedp aym en t s an dex p en se rei m b u rs em en t s . Th e Co u rtl o o k s atth e OPC ch eck s wri t t en t o M r. Bo ll es t o d et erm in e t h e am o u n to f h i s g u aran teed p aym en t s. Th e reco rdrefl ect s t h atM r. Bo l l es p ai ds o m e ex p en s es o f t h e p art n ers h i p
an d was th enrei m

b u rs edfo r t h o s e ex p en s es . M r. Bu rk s cred i b l y t es t i fi edth atM r. Bo l les wo u l d o ft en b uy

l u n ch fo r t he en t i re crew wh en o n a jo b i n o rd er t o
m i n i m i ze d o wn t i m e. In M r. Bu rk s ’ t es t i m o n y h e al s o co n fi rm ed th atM r. Bo l l es p ai dfo r u t il i t i es atth e ren t al p ro p ert i es i n Kan s as . Becau se t he p aym en t s t o M r. Bo l les were co n s is t en t i n am o u n tan dt i m in g , th e Co u rtcan i n fer t h at an y ad d it i o n al am o u n ts p ai dt o h im were fo r ex p en s e rei m

b u rs em en ts
. Th erefo re, as th e Co u rth as fo u n d , M r. Bo ll es recei v ed $ 2 ,1 50 fo r ex p en s e rei m b u rs em en t s th at
were n o t g u aran t eed p aym en t s i n 2 0 1 0
. Th e reco rdal s o refl ect s th atOPC p ai dM r. Bo l l es a fi x edp aym en to f $ 2 50 p er weekfo r m eal s an di n ci d en t al s as p arto f h i s p aym en tfo r s erv i ces t o the p art n ers hi p wi th o u treg ardt o OPC’ s i n co m e. Th erefo re, as th e Co u rth as fo u n d , M r. Bo ll es recei v ed$ 4 ,2 5 0 fo r m eal s an di n ci d en t al s th atwas p arto f h i s- 2 2 -

[* 2 2 ] g u aran t eedp aym en t s i n 2 0 1 0 b ecau s e t h ey are p aym en t s t o a p artn er fo r
s erv i ces wi th o utreg ardt o p art n ers h i p i nco m e. See s ec. 7 07 (c); Cag l e v . Co m m i s s i o n er, 5 3 9 F.2 d4 0 9 , 4 1 3 (5 th Ci r. 1 9 7 6 ), aff’ g 6 3 T.C. 8 6 (1 9 7 4 ). B. Lo an Fro m

OPC Pet i t i o ners cl ai m

$ 4 ,0 00 was a l o an t o M r. Bo l l es an dn o ta g u aran t eed p aym en t
. M r. Bo ll es cl ai m s h e t o o ko u ta $ 4 ,0 0 0 l o an wi th OPC t hath e n ev er p ai db ack
. Wh et h er a t ran s act i o n i s a l o an fo r Fed eral i n co m e t ax p u rp o s es i s a qu es ti o n o f fact
. Th e fo ll owi n g fact ors are co n s i d eredi n d et erm i n in g wh et h er a l o an i s b o n a fi d e: (1 ) t h e ex i s t en ce o f a s u m cert ai n , (2 ) t h e l i k el i h oo d o f rep aym en t , (3 ) a d efi n it e d at e o f rep aym en t , an d(4 ) t h e m an n er o f rep aym en t
. Seayv . Co m

m i s s i o n er, T.C. M em o . 1 9 9 2 -2 5 4 ; M an gh am v . Co m m i s s i o n er, T.C. M em o. 1 9 8 0 -2 8 0
. Fo r p u rp o s es o f s ect i o n 7 0 7 (a), a l o an b y a p art ners h i p t o a p art n er i s co n si d eredt o h av e b een m ad e o n ly wh ere t h e p art n er i s u n d er an
u n co nd i t io n al o b l i g at i on t o rep ay a s u m cert ai n ata d et erm in ab l e d at e. See Eg o l f
v . Co m m i s s i o n er, 8 7 T.C. 3 4 , 4 7 -4 8 (1 9 86 ); Cah i l l v . Co m m i s s i o n er, T.C. M em o . 2 0 1 3 -2 2 0
. M r. Bo l les arg u es th at $ 4 ,0 0 0 p ai dt o h i m o n Feb ru ary

1 2 , 2 0 1 0 , was a l o an th ath e d i dn o tp ay

b ackwh en h e l eftOPC. No th i n g i n th e reco rd , i n cl u di n g M r.- 2 3 -

[* 2 3 ] Bo l l es ’ o wnt es t i m o n y , refl ect s th ath e h ad a d efi n i te d at e o f rep aym en to r a
m an n er o f rep aym en t . Th erefo re, t h e $ 4 ,0 0 0 was n o ta l o an b u trat h er a g u aran teedp aym en t . As th e Co u rth as fo u n d, M r. Bo l les recei v edt o tal g u aran t eed p aym en t s o f $ 4 9 ,8 2 0 .3 1
. C. Car an dTru ckEx p en ses Pet i t i o ners cl ai m ed a d edu ct i o n fo r car an d t ru ckex p en s es o f $ 15 ,1 0 6 o n th ei r 2 01 0 t ax return . Attri al an do n b ri ef M r. Bo l l es cl ai m edt o h av e i n cu rred th o s e ex p en ses wh i le awayfro m h o u s e p erfo rm i n g fo rem an du t i es fo r OPC. Ho wev er, th e reco rd , i ncl u d i ng M r. Bo l l es ’ t es t i m o n y , refl ect s th atOPC p ai dth e
m o nt h l y fi nan ci n g p aym en tan d fu el fo r M r. Bo l l es ’ GM C t ru ck wh i l e h e was p erfo rm i n g fo rem an du t i es fo r OPC. Gen eral ly , a p artn er m ay

n o td i rect l y d edu ctth e ex p en s es o f t h e p art n ers h i p
o n h i s o r h er i n d i v i du al return s, ev en i f t h e ex p en s es were i ncu rredb y th e p art n er i n fu rt heran ce o f p art n ers h i p b u s i nes s . Cro p l an dCh em . Co rp . v . Co m m i s s i o n er, 7 5 T.C. 2 8 8 , 2 9 5 (1 9 8 0 ), aff’ dwi th o u tp ub l i s hedo pi ni o n, 6 6 5 F.2 d 1 05 0 (7 th Ci r. 1 9 8 1 ). Anex cep t i o n ap p l i es , h o wev er, wh en there i s an ag reem en tam o n g p art n ers , o r a ro u ti n e p ract i ce equ al t o an ag reem en t , th atreq ui res a p art ner t o u se h i s o r h er o wnfu nd s t o p ay a p art n ers h i p ex pen s e. Id .; Kl ei n v . Co m m is s io n er, 2 5 T.C. 1 0 4 5, 1 0 5 1 -1 0 5 2 (1 9 5 6 ).- 2 4 -

[* 2 4 ] Becau s e M r. Bo ll es d i d n o ti n cu r t h e ex p en s e o f h i s GM C t ru ckwh il e p erfo rm i n g fo rem an du t i es fo r OPC, h e i s n o t en t i tl ed t o d eductth e ex p en s e. Th e Co u rtd o es n oth av e s u ffi ci en ti n fo rm at i o n i n th e reco rdt o d et erm i n e wh eth er o r h o w OPC rep o rt edth e ex p en s es o n i t s b o o k s an dreco rd s o r th e p artn ers ’ cap i t al
acco u n t s. Th erefo re, p et i ti o n ers are n o ten t i t l ed t o th e d edu ct io n fo r car an dtru ck
ex p en s es . III. St o rm

Cas ual ty Lo s s Sub ject t o cert ai n l im i tat i o n s , an i n d iv i du al i s en ti t ledt o a d edu ct io n fo r

“ an y l o ss [es ] s u s t ai n eddu ri n g th e t ax ab l e y ear an dn o t co m p en s at edfo r b y i n s u ran ce o r o th erwi s e” t h at“ ari s e fro m fi re, s t o rm , * * * o r o th er cas ual ty ”. Sec. 1 6 5 (a), (c)(3 ), (h )(1 ) an d(2 ). 1 8 To p ro p erl y

co m p u te a cas u al ty

l o s s d edu ct i o n, the fo ll o wi n g v al u es o f t h e d am ag edo r d es tro y ed p ro p ert y m u s tb e es t ab l i s h ed : (1 ) fai r m ark etv al u e b efo re th e cas u al ty , (2 ) fai r m ark etv al u e aft er t h e cas ual ty , an d (3 ) t h e t ax p ay er’ s b as i s i n th e p ro p ert y . See M il l sap v . Co m m i s s i o n er, 4 6 T.C. 7 5 1 , 7 5 9 (1 9 6 6 ), aff’ d , 3 8 7 F.2 d4 2 0 (8 th Ci r. 1 9 6 8); s ec. 1 .1 6 5 -7 (a)(2 )(i ), In co m e Tax Reg s . As a g en eral
ru l e, t h e p recas u al ty

an dp o s t cas u al ty

v al u es m us tb e d et erm i n ed “ by

co m p et en t

1 8 Th e Tax Cu t s an dJ o b s Acto f 2 0 17 , Pub. L. No . 1 1 5 -9 7 , s ec. 1 1 0 44 , 1 3 1 St at . at 2 08 7 -2 0 8 9, am en d ed s ec. 1 6 5 (h )(5 ) t o l i m i t an i n d i v i du al cas u al ty l o s s d educt i o n t o th o s e at tri b u tab l e t o a fed eral l y d ecl ared d i s as t er.- 2 5 -

[* 2 5 ] ap prai sal .” Sec. 1 .1 6 5 -7 (a)(2 )(i ), In co m e Tax Reg s . As an al t ern at iv e, t h e reg u l at i o n s p ro v i de t h at i f t h e t ax p ay er h as rep ai redth e p ro p ert y d am ag e res u l t i n g fro m th e cas ual ty , the t ax p ay er m ay u s e t h e co s t o f rep ai rs t o p ro v e t h e cas u al t y l o s s . See i d. s ub d i v . (i i ). Th e t ax p ay er m us tal s o s h o w th at (a) t h e rep ai rs are n eces saryt o res t ore t h e p ro p ert y t o i t s co n di ti o n i m m ed i at el y b efo re t h e cas u al ty , (b ) t he am o u nts p en tfo r s u ch rep ai rs i s n o t ex ces s i v e, (c) t h e rep ai rs d o n o tcare fo r m o re t h anth e d am ag e s u ffered , an d(d ) t h e v al u e o f t h e p ro p ert y aft er t h e rep ai rs d o es n o tas a res u lto f t h e rep ai rs ex ceed th e v al ue o f t he p ro p ert y i m m ed i at el y b efo re th e cas ual ty . Id . Th e co s to f rep ai ri n g th e p ro p ert y m u s t b e t h e act u al co s ti n cu rredt o rep ai r t h e p ro p erty , n o tan es t i m at e. Lam p h ere v . Co m

m i s s i o n er, 7 0 T.C. 3 91 , 3 96 (1 9 7 8 ). Th u s, an es t i m at e o f t h e co s to f rep ai ri ng th e p ro p erty can n o tb e u s edt o d et erm i n e th e d ecl i n e i n th e v al u e o f t h e p ro p ert y . Id . Th e am o u n to f th e l o s s co m p ut ed
u n d er s ect i o n 1 6 5 (a) i s l i m it edt o th e ad ju s t edb as i s . Sec. 1 .1 6 5 -7 (b )(1 ), In co m e Tax Reg s . Th e n ex ts t ep i n d et erm in i n g th e am ou n to f a cas u al ty l o s s i s t o redu ce t h e
am ou n to f t h e l o s s b y

th e co m p en s at i o n recei v edo n acco u n to f t h e l o s s . Sec. 1 6 5 (a); s ee s ec. 1 .1 65 -7 (b )(3 ), Ex am p l es (1 ), (2 ), an d(3 ), In co m e Tax Reg s . Th e redu ct i o n i s req ui redfo r s ect i o n 1 6 5 (c)(3 ) cas u al ty l o s ses . Fi n al ly , ad

j u s t m en t s
m u stb e m ad e t o acco u n tfo r t h e $ 1 0 0 fl o or an dth e 1 0 %-o f-ad ju s t ed -g ro s s-i n co m e- 2 6 -

[* 2 6 ] fl o o r. Sec. 1 6 5 (h )(1 ) an d(2 )(A). Th es e ad ju s t m en t s m

us tb e m ad e fo r an y
s ect i on 1 6 5 (c)(3 ) cas u al ty l o s s es . A. Pet i t i o ners ’ Real Pro p ert y To “ res t o re t h e p ro p ert y t o i t s co nd i t i o n i m m ed i at el y b efo re t h e cas u al ty ” p et i t i o n ers wo u l d n eedt o reb u i l da h o u se fro m raw l an d(i n cl u d i n g reb u i l d i n g a
s ep t i c s y st em

an d fo u n d at io n ), rep ai r t h e p o o l, reb u il da p o o l h o u se, an dreb u i l d th e 3 0 x 4 0 s hed . Aft er t h e l o s s fro m th e t o rn ad o d am ag e, p et i t io n ers ’ i n s u ran ce
co m p an y co m p en sat edth em

$ 2 3 5 ,5 2 6.5 0 as th e co st o f rep l aci n g t h ei r h o u s e an d p o o l an dcl ean i n g up d eb ri s fro m the Ru n n in g Deer p ro p ert y . Th e co m p en s at i o n i n cl u d edth e co s t fo r a rep l acem en th o us e o f $ 1 7 5 ,0 00 , ren o v at i on s t o the rep l acem en th o u s e o f $ 3 4 ,3 8 5 .8 7 , an dd eb ri s cl ean up o f $ 2 0 ,5 7 1 .4 2 . Th e
co m p en s at i o n d i dn o ti n cl u d e t h e co s to f rep l aci ng th e p o o l h o u se o r t h e 3 0 x 4 0
s h ed
. Res p o n d en targ u es th atp et i ti o n ers were o v erco m p en s at edb y

th ei r i n s u ran ce co m

p an y b ecau s e t h e ad

ju s t edb as is i n th ei r h o u se was $ 1 0 8,0 0 0 --t h ei r
o ri g i nal m o rt g ag e am o u nt . Ho wev er, res p o n den tfai l edt o t ak e i n t o acco u n tth at $ 1 0 8 ,0 0 0 was p et it i o n ers ’ m o rt g ag e am o un tan dthatam o u n td o es n o trefl ectan y d o wnp aym en t s o r o th er equ i ty p et i t io n ers m ay h av e g ai n edi n ren o v at i n g th e d et eri o rat edRu n n i n g Deer p ro p ert y o v er 1 0 y ears . Pet i t i o n ers s pen ts i gn i fi can t- 2 7 -

[* 2 7 ] l ab o r an dres o u rces fi x in g s tru ctu ral p ro b lem s, d eal in g wi th t erm i t es , rep l aci ng th e ro o f, p o u ri n g n ew co n cret e, l ay i n g s t o ne wo rk , b u i l di n g an o u t d o o r p at i o wi th a cu s t o m

fi rep l ace, rep l aci n g th e p o o l l i n er, fi x i n g the p o o l h o us e, an d
ren o v at i n g p arto f t h e k i t ch en . Yet , p et i t i o n ers d i dn o tp ro v i de t h e Co urtwi th
ev i d en ce wi th res p ectt o the co s to f d o in g an y ren o v at i o ns t o th e p ro p ert y . Ad d i t i o n al l y , th e reco rdd o es n o trefl ectwh et h er t h e $ 1 0 8 ,0 0 0 m o rt gag e i n cl u d ed
o r ex cl u d edth e v al u e o f t h ei r ex t en s i v e rep ai rs an dren o vat i on s o r i f t h o s e i m p ro v em en t s wen tt o wardequi ty i n th e p ro p ert y . Wh ere t h e t ax pay er d o es n o tp ro v e a b as is , th i s Co u rth as co n s is t en t l y h el d th ath i s l o s s can n o tb e co m pu t ed . M i l l s ap v . Co m

m is si o n er, 4 6 T.C. at7 6 0; To wers v . Co m

m i s s i o n er, 2 4 T.C. 1 99 , 2 39 (1 9 55 ), aff’ d , 2 47 F.2 d 2 3 3 (2 dCi r. 1 9 5 7 ). Becau s e p et i ti o n ers h av e n o tp ro v enthei r ad ju s tedb as i s i n th e Ru n n i n g Deer p ro pert y , they

h av e fai l edt o p ro v e t h atth ey i n cu rreda cas u al ty

l o s s fo r t h ei r real p ro p ert y . B. Pet i t i o ners ’ Ho u s eh o l d , Sh ed , Po o l Ho u s e, an d Back y ardPro p ert y Pet i t i o ners co m

p i l ed a l i s to f i t em s i n thei r h o u se, t h ei r s h ed , thei r p o o l h o u s e, an d thei r b ack y ard . Pet i t i o n ers ’ i n su ran ce co m p an y v al u ed th o s e i t em s as
o f t h e t i m e o f l o s s at$ 1 2 4 ,3 3 2 .7 6 . Th e i n s u ran ce co m p an y p ai d th em th e l i m i to n th ei r p ers o n al p ro p erty

co v erag e--$ 9 8 ,4 5 1 . Pet i t i o n ers ’ l i s to f i t em s d i dn o t- 2 8 -

[* 2 8 ] i n cl u d e an y cl o thi ng , s h oes , o r acces so ri es fo r an y fam i l y m em b er i n th e h o u s eh o l d . Nei th er d i di ti n cl u d e t h ei r d ep en den ts o ns ’ t o y s , el ect ro n i cs , an d
s p o rt s g ear. Res p o n d en targ u es th atp et i ti o n ers were m o re t h an co m p en sat edfo r t h e l o s s
o f t h ei r p ro p ert y

o r t h at th ey d i dn o th av e a s u ffi ci en tb as i s t o cl ai m a cas u al ty l o s s . Th e Co u rtfi n d s res p on den t ’ s arg u m en t u nreal is ti c. Pet i t i o n ers ’ i n s u ran ce
co m p an y d et erm i n ed p et i ti o n ers h ada t o t al l o s s t o al l th ei r p ro pert y --d es tro y ed
u n d er t h ei r n ei g h b o r’ s h ou s e o r s wep taway i n th e EF5 t o rn ad o . Th e 3 2 p ag es o f i t em s l i s t edfo r t h e i n s uran ce co m p an y were fo r i t em s p et i t i o n ers h adp u rch as ed
o v er 1 5 y ears o f l i v i n g at th e Ru n n i ng Deer p ro p ert y an d2 5 y ears o f m arri ag e. Th e i n s u ran ce co m

p an y v al u edth e o ri g in al co s to f t h o se i tem s at$ 18 0 ,3 9 2 .9 9
. Sub jectt o n u m ero u s ex cep t i o n s , th e g en eral ru l e i s th ata t ax p ay er’ s b as i s i n p ro p erty equ al s th e t ax p ay er’ s co s to f t h e p ro p erty . See s ecs . 1 0 1 1 an d1 0 1 2
. Acco rd in g ly , th e Co u rtfi n d s th atp et i t i o n ers ’ ad ju s t ed b as i s i n th ei r p ers o n al p ro p erty ex ceed edi t s fai r m ark etv al u e. Th e am ou n to f t he “ l o s s actu al l y s u s t ai n ed ” i s , o f co u rs e, a qu es t i o n o f fact
. In Co rn el i u s v . Co m

m is s i o n er, 5 6 T.C. 9 7 6 , 9 8 0 -9 81 (1 9 71 ), th e Co urtfo u n dth at th e fai r m ark etv al u e o f t h e t ax p ay er’ s h ou s eh o l d co nt en t s m eas u redb y th ei r ag g reg at e co s t l es s a d ep reci at i o n fact o r o f 2 0% t o 2 5 % was fai r an d reas o n ab l e.- 2 9 -

[* 2 9 ] Onth e b as i s o f t h e ev i d en ce co n t ai n edi n th is reco rd , th e Co u rth o l ds , as refl ect edi n th e fi n di ng s o f fact , th atth e fai r m ark et v al ue o f p et i t i o n ers ’ p ers o n al p ro p erty i m m ed i at el y b efo re t h e t o rn ad o was $ 1 3 5 ,7 61 .2 3
. 1 9 Fai r m ark etv al ue o f p ers o n al p ro p ert y b efo re t h e t o rn ad o $ 1 3 5,7 6 1 .2 3 Fai r m ark etv al ue o f p ers o n al p ro p ert y aft er t he t o rn ad o -0
- Am ou n trei m

b urs edb y i ns u ran ce 9 8,4 5 1 .0 0 Am ou n tn o trei m

b u rs edb y i n s u ran ce 3 7,3 1 0 .2 3 Les s $ 1 0 0 (s ec. 1 65 (h )(1 )) 1 0 0 .0 0 Les s 1 0 % o f ad

ju s t edg ro s s i n co m e (s ec. 1 6 5(h )(2 )) u n kn o wn Al l o wab l e cas u al ty

l o s s d edu ct i o n Ru l e 1 5 5 Pet i t i o ners al s o req u es tth atth e Co u rt i ncl u d e a Ch ev y z7 1 o ff-ro adp i ckup tru ck , an o l dJ eep , an da h o rs e t rai l er i n th ei r cas u al ty l o s s cal cu l at i on . Ho wev er, p et i t i o n ers h av e n o t p ro v i d edan y v al u es fo r th e Co u rtt o d et erm i n e t h ei r fai r

1 9 Pet i t i o ners ’ i n s u ran ce co m p an y v al u ed as o f i m

m ed i at el y b efo re t h e cas u al ty th ei r l i s to f i t em s at$ 12 4 ,3 32 .7 6 --a 3 1 % d ep reci at i o n fro m o ri g i n al co s t v al u e. Attri al p et i ti o n ers s ubm i t t edas ev i d en ce an ad d i t i o n al l i s t o f h o u s eh o l d co n ten t s , s o m e o f wh i ch o v erl ap p edwi th th e l i s tp ro vi dedt o th ei r i n s u ran ce co m p an y . Pet it i o n ers rep o rt edth atth e h o u s eh ol dco n t en t s th atwere n o t i n cl u d ed o n th e i n s u ran ce co m

p an y ’ s l i s th ada b as i s o f $ 1 6 ,5 6 3 ($ 4 ,5 6 6 --d ep en d en ts o n s ’ cl o th i n g , s h o es , an dacces s ori es ; $ 3 ,4 5 5 --M r. Bo l l es ’ cl o th i n g , s h o es , an d acces s o ri es ; $ 5 ,6 4 0 --M rs . Bo l l es ’ cl ot h i ng , s h o es , an dacces s o ri es ; an d$ 2 , 9 0 2
-- d ep en d en t s on s ’ t o y s , el ect ro n i cs , an ds p o rt s g ear). Th e Co u rtwi l l i n fer 3 1% d ep reci at i o n t o d et erm i n e t h e fai r m ark et v al u e i m m ed i at el y b efo re t h e cas u al ty . See Co rn el i u s v . Co m

m i s si o ner, 5 6 T.C. 9 7 6 , 9 8 0 -9 8 1 (1 9 71 ). Th e fai r m ark et v al u e (ad ju s ted bas is m i n u s 3 1 % d ep reci at i o n ) o f t ho s e i t em s i s $ 1 1 ,4 28 .4 7
. ($ 1 2 4,3 3 2 .7 6 + $ 1 1 ,4 2 8 .4 7 = $ 1 3 5 ,7 61 .2 3 )- 3 0 -

[* 3 0 ] m ark et v al u es o r ad ju s t edb as es . Th erefo re, th o se i tem s wi l l n o tb e i n cl u d ed i n the cal cu l at i o n o f p et i t io ners ’ cas u al ty l o s s . M i l l s ap v . Co m

m i s s i o ner, 4 6 T.C. at7 6 0
. IV. Co n cl u si o n Pet i t i o ners h adu n rep o rt edg ro s s recei p t s o n t h ei r Sch edu l e C fo r t h e
m as o n ry b u s i n es s o f $ 9 ,2 3 4 .0 4 fo r 2 0 1 0. Pet i t io n ers are en ti t l edt o co s to f g o o d s
s o l do f $ 6 ,7 23 .1 3 an d a d edu ct i o n fo r co nt ract l ab o r ex p en ses o f $ 6 ,3 5 4
. 5 0
. M r. Bo l les recei v edg u aran t eedp aym en t s o f $ 4 9 ,8 2 0.3 1 fro m OPC i n 2 0 1 0
. Pet i t io n ers are n o ten t i t l edt o a d edu ct i o n fo r car an dtru ck ex p en ses cl ai m edo n th e Sch edu l e C fo r OPC. Pet i t i o ners are en t i tl edt o a cas u al ty l o s s o f $ 37 ,3 1 0 .2 3 l es s $ 1 0 0 an dl es s 1 0 % o f t h ei r ad

j u s t edg ro ss i n co m e fo r 2 0 1 0. Th e Co u rth as co n s i d eredal l o f t h e arg um en t s m ad e b y th e p art i es , an dt o th e ex t en tth ey

are n o tad dres s edh erei n , th ey are co ns i d eredu nn eces s ary , m o o t , i rrel ev an t , o r wi th o u tm eri t
. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5
.