TAX COURT OPINION

Case: John Curtis Pike
Docket Number: 25789-06S
Judge: Colvin
Opinion Type: bench
Filed: 11/26/2008
Pages: 6

UNITED STATES TAX COURT WASHINGTON , D .C. 2021 7 JOHN CURTIS PIKE , Petitioner , V . COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R Docket No . 25789-06 . i ~ CAL . STAT . JUDGE FILE S Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial of the above case before Judge Diane L . Kroupa at Seattle, Washington on October 28, 2008, containing her oral findings of fact and opinion rendered after the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed) Diane L . Kroupa Judg e Dated : Washington, D .C . November 26, 2008 SERVED Nov 26 2008 3 1 Bench Opinion by Judge Diane L . Kroup a 2 October 28, 2008 John C . Pike v . Commissioner 3 Docket No . 25789-06 S 4 THE COURT : The Court has decided to render 5 oral findings of fact and opinion in this case and the 6 following represents the Court's oral findings of fact 7 and opinion . These oral findings of fact and opinion 8 shall not be relied upon as precedent in any othe r 9 case . 10 This proceeding was heard as a small ta x 11 case pursuant to the provisions of section 7463 of the 12 Internal Revenue Code of 1986 as amended, and Rule s 13 170 through 175 of the Tax Court Rules of Practice and 14 Procedure . All section references are to the Internal 15 Revenue Code for the year 2001, the year at issue, and 16 all Rule references are to the Tax Court Rules o f 17 Practice and Procedure . 18 This bench opinion is made pursuant to the 19 authority granted by section 7459(b) and Rule 152 . 20 John Curtis Pike appeared pro se, an d 21 Catherine L . Campbell appeared on behalf of 22 respondent . 23 FINDINGS OF FAC T 24 Certain facts have been stipulated . Th e 25 stipulation of facts, with accompanying exhibits, are Heritage Reporting Corporatio n (202) 628-4888 4 1 incorporated by this reference . The facts are s o 2 found . 3 Petitioner resided in Washington at the time 4 he filed the petition in this case . 5 The dryer in Petitioner's house started on 6 fire on December 16, 2001, and caused extensive smoke 7 damage to the entire house and contents . Petitioner 8 lived at the house with his 16 - year old daughter . 9 Petitioner was the insured on a policy of insurance 10 issued by State Farm covering losses to his residence 11 and personal property from casualties including a 12 fire . Petitioner made a claim with State Farm before 13 the end of 2001 . 14 Petitioner received two different quotes for 15 the damage done to the house and personal property . 16 One quote from Service Master dated December 17, 2001, 17 reflected a $48,104 .25 net cash value estimate and the 18 other quote from Simco dated January 9, 2002 , 19 reflected a $78,652 . 07 estimated net cash value after 20 the deductible . 21 State Farm made several payments t o 22 Petitioner individually or to Petitioner with other 23 co-payees including Petitioner' s mortgage, Service 24 Master , the Best Western Park Plaza for lodging 25 between December 19, 2001 and January 4 , 2002, and Heritage Reporting Corporatio n (202) 628-4888 5 1 other co-payees . Altogether State Farm pai d 2 $117,740 .99 to Petitioner or on Petitioner's behalf 3 from December 17, 2001 through September 13, 2002 . 4 At some point during 2002, State Farm 5 notified Petitioner that he was considered i n 6 violation of the insurance policy by fraudulently 7 claiming he lost personal property when it wa s 8 property of his former girlfriend, not his . O n 9 December 20, 2002, State Farm notified Petitioner that 10 all benefits claimed in connection with the fire loss 11 on December 16, 2001, were denied . On February 13 , 12 2003, Petitioner's policy was declared void effective 13 as of the fire date and insurance premiums Petitioner 14 paid from June 2001 to June 2002 were returned t o 15 Petitioner . Petitioner was also required to reimburse 16 State Farm the $117,740 .99 State Farm had paid to 17 Petitioner or on Petitioner's behalf . 18 Petitioner retained an attorney sometime in 19 2002 to sue State Farm . State Farm and Petitione r 20 resolved their lawsuit for $55,000 on July 8, 2003 . 21 Petitioner late filed a return for 2001 in 22 2005 and claimed a $73,970 casualty loss attributable 23 to the fire . Respondent disallowed the casualty loss 24 for 2001 . Petitioner timely filed a petition . 25 We are asked whether Petitioner is entitled Heritage Reporting Corporation (202) 628-4888 6 1 to a casualty loss from the fire in 2001 . A taxpayer 2 is generally allowed to deduct a casualty los s 3 sustained during a taxable year that is no t 4 compensated for by insurance or otherwise . Sec . 5 165(a), (c)(3) . If, with respect to a casualty loss, 6 there exists a claim for reimbursement for which there 7 is a reasonable prospect of recovery, no portion o f 8 the loss may be deducted until it can be ascertained 9 with reasonable certainty whether such reimbursement 10 will be received . Sec . 1 .165-1(d)(2)(i), Income Tax 11 Regs . If there is a reasonable prospect of recovery, 12 then the loss is deductible, if at all, only'in the 13 tax year in which the insurance claim is finally 14 settled . Commissioner v . Harwick , 184 F .2d 835 (5th 15 Cir . 1950), affg . a memorandum opinion of this Court . 16 Petitioner has the burden of proving that he 17 is entitled to the deduction claimed . Rule 142(a) ; 18 Welch v . Helvering , 290 U .S . 111, 115 (1933) . This 19 includes the burden of proving that a deductible loss 20 occurred in the year claimed . Premli v . Commissioner ; 21 T .C . Memo . 1996-304, affd . in an unpublished order at 22 98-1 USTC para . 50,218 (10th Cir . 1998) . 23 A reasonable prospect for recovery exists 24 when one has a bona fide claim for recoupment from a 25 third party and there is a substantial possibilit y Heritage Reporting Corporation (202) 628-4888 7 1 that such claim will be decided in the taxpayer' s 2 favor . Scofield's Estate v . Commissioner , 266 F .2d 3 154, 159 (6th Cir . 1959) . An objective standard is 4 used to determine whether there was a reasonabl e 5 expectation of recovery in the taxable year in which 6 the deduction is claimed . Ramsey Scarlett Co . v . 7 Commissioner , 61 T .C . 795, 811 (1974), affd . 521 F .2d 8 786 (4th Cir . 1975) . 9 Petitioner provided minimal evidence of the 10 insurance claim settlement with State Farm . As o f 11 December 31, 2001 (some 15 days after the fire), 12 however, there was an insurance claim for the fire 13 that was reasonably expected to cover the loss . 14 Accordingly, no deduction can be allowed for 2001, the 15 year in which the fire occurred . Moreover, we fin d 16 that Petitioner has failed to substantiate the amount 17 of the loss sustained regardless of the yea r 18 allowable . 19 To reflect the foregoing, decision will be 20 entered for respondent . 21 This concludes the Court's oral findings of 22 fact and opinion in this case . 23 (Whereupon, at 1 :19 p .m ., the matter in the 24 above-entitled bench opinion was concluded . ) 25 Heritage Reporting Corporation (202) 628-4888