Case Name: W. M. Ferguson, Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1931-05-21
Citations: 23 B.T.A. 364
Docket Number: Docket No. 38744
Parties: W. M. Ferguson, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: Matthews concurs in the result only.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 23
Pages: 364–369

Head Matter:
W. M. Ferguson, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 38744.
Promulgated May 21, 1931.
E. L. 'Washington, Esq., and Ray G. Ransom, G. P. A., for the petitioner.
Elden McFarland, Esq., for the respondent.

Opinion:
OPINION.
Lansdon:
The respondent asserts a deficiency in income tax for the year 1923 in the amount of $8,878.52. For his cause of action the petitioner alleges that respondent erroneously disallowed the deduction .of $39,812.07 from his gross income in the taxable year as a loss sustained in that year. The parties have stipulated the facts as follows:
1. That the petitioner was the owner of eight thousand five hundred twenty (8,520) acres of land located in Townships twenty three (23) and twenty four (24) Woodward County, Oklahoma, known as the Ferguson Ranch. That the total cost of the said property to the petitioner was one hundred twenty three thousand six hundred forty three and 50/100 dollars ($123,643.50).
2. That during the year 1923 there was damaged by floods one thousand six hundred ninety (1,690) acres of the above land.
3. That the portion of the total cost of said Ferguson Ranch to be allocated to the 1,690 acres damaged by floods was thirty eight thousand two hundred eighty and 67/100 dollars ($38,280.67).
4. That immediately after the floods above mentioned, and because of the damaging effects thereof, the fair market value of the 1,690 acres damaged by floods was ($5,130.00) five thousand one hundred thirty dollars.
5. That during the year 1923 the petitioner was the owner of (777) seven hundred seventy-seven acres of land located in sections 28, 29 and 33 township 32 range 3 west Sumner County, Kansas. The total cost of which was thirty one thousand eighty dollars ($31,080.00).
6. That during the year 1923 there was damaged by floods two hundred (200) acres of the above land located in Sumner County.
7. That the portion of the total cost of the said Sumner County Ranch to be allocated to the two hundred acres damaged by floods was seven thousand six hundred sixty one and 40/100 dollars ($7,661.40).
8. That immediately after the floods above mentioned, and because of the damaging effects thereof, the fair market value of the two hundred acres damaged by floods was reduced to $1,000.00.
9. That such portions of the above mentioned properties as were acquired before March 1, 1913 had a value as of that date which was the same as the original cost.
10. That immediately prior to the said above mentioned floods the value of all the property damaged was in excess of the cost.
Petitioner contends that the loss sustained is deductible from his gross income under the provisions of section 214 (a) (6) of the Revenue Act of 1921, which is as follows:
Losses sustained during the taxable year of property not connected with the trade or business (but in the case of a nonresident alien individual only property within the United States) if arising from fires, storms, shipwreck, or other casualty, or from theft, and if not compensated for by insurance or otherwise. Losses allowed under paragraphs (4), (5), and (6) of this subdivision shall be deducted as of the taxable year in which sustained unless, in order to clearly reflect the income, the loss should, in the opinion of the Commissioner, be accounted for as of a different period. In case of losses arising from destruction of or damage to property, where the property so destroyed or damaged was acquired before March 1, 1913, the deduction shall be computed upon the basis of its fair market price or value as of March 1. 1913.
The contention here appears to be no more than a claim to deduct a loss resulting from diminution in value of property which had not been destroyed, abandoned, or otherwise disposed of by the petitioner in the taxable year. The Commissioner's interpretation of the* provisions upon which the petitioner relies is thus set out in article 141 of Regulations 62:
Losses sustained during the taxable year and not compensated for by insurance or otherwise are fully deductible (except by nonresident aliens) if (a) incurred in a taxpayer's trade or business, or (b) incurred in any transaction entered into for profit or (c) arising from fires, storms, shipwreck, or other casualty, .or theft. They must usually be evidenced by closed and completed transactions. (Italics supplied.)
In the instant proceeding, since the petitioner has not disposed of his land, there is no completed transaction. The evidence fails to disclose the nature of the damage upon which the claim is based. The loss here claimed did not result from partial or complete destruction of improvements, but from some sort of damage to soil or land. It is stipulated that immediately after the floods the fair market value of the two properties was so many thousands of dollars less than it was before the alleged damage was sustained. This is evidence of diminished value, but is not a basis for deduction from income for Federal tax purposes. Weiss v. Weiner, 279 U. S. 333; Mrs. J. C. Pugh, Sr., Executrix, et al., 17 B. T. A. 429; affd., 49 Fed. (2d) 76; Marion Stone Burt Lansill et al., 17 B. T. A. 413.
In his brief the petitioner cites our decisions in Mary Cheney Davis, 16 B. T. A. 65 and John S. Hall, 16 B. T. A. 71. In those proceedings we allowed losses for the partial or complete destruction of shade trees and other ornamental shrubbery upon proof of the cost and of the extent of the damage. The petitioners no longer retained the property destroyed and had no way in which to recoup themselves for their losses. Their property was disposed of in a most effective fashion, that is, by complete destruction.
Apparently the petitioner contends that the fact that a loss was sustained by storm removed it from the usual rules which govern the deduction of losses from income for Federal tax purposes. In our opinion the only additional factors affecting losses from storm or other casualty is that it is not necessary for the destroyed property to be held for investment or used in a trade or business for gainful purposes. To secure the deduction of such losses the taxpayer must still' show realization thereof through destruction or disposition. In the instant proceeding the land was neither destroyed nor disposed of within the taxable year. The determination of the respondent is approved.
Reviewed by the Board.
Decision will be. entered for the respondent.
Matthews concurs in the result only.