Court Opinion

ID: 4333424
Source: CourtListenerOpinion
Date Created: 2018-11-14 01:11:43.376517+00
Date Added: 2024-06-11T14:47:11.275779
License: Public Domain

T.C. Memo. 2001-218

                     UNITED STATES TAX COURT

               ROBERT CARMELO TORRE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 15186-99.                    Filed August 13, 2001.

     Robert Carmelo Torre, pro se.

     Julie L. Payne, for respondent.

             MEMORANDUM FINDINGS OF FACT AND OPINION

     WOLFE, Special Trial Judge:     Respondent determined a

deficiency of $840 in petitioner’s Federal income tax for 1997.

The issues for decision are:   (1) Whether petitioner must include

in income dividends of $5,603 that he received during 1997 from

Fidelity Investments, and (2) whether petitioner is entitled to a

casualty or theft loss of $48,890.15 for 1997.
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      Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the taxable year in

issue.

                         FINDINGS OF FACT

      Some of the facts have been stipulated, and the stipulated

facts are incorporated herein by this reference.   Petitioner

resided in Vancouver, Washington, when he filed the petition in

this case.

A.   Long-Term Capital Gain

      During 1997 petitioner received from Fidelity Investments

dividends of $10,469.05, short-term capital gain of $3,035.05,

and long-term capital gain of $5,603.72.

      On Schedule B, Interest and Dividend Income, of his 1997

individual income tax return, petitioner reported gross dividends

and distributions of $13,504.40, deducted from this amount

capital gain distributions of $5,603.72, and carried forward to

line 9 of his Form 1040 for 1997 the resulting amount of

$7,900.68.   Petitioner reported the capital gain distributions on

Schedule D, Capital Gains and Losses, Form 1040 for 1997.

Nevertheless, in effect, petitioner simply omitted from his

income reported for 1997 an amount equal to the long-term capital

gain distributions he received for that year.   On July 20, 1999,

respondent issued a notice of deficiency, adjusting petitioner’s

1997 gross income by including in petitioner’s income the $5,603
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he had omitted from his tax return.

B.   Casualty/Theft Loss

      In 1996, petitioner purchased a house in Coos Bay, Oregon,

for $40,000.   Shortly after petitioner moved in, his neighbors

allegedly began harassing him and vandalizing his property.

According to petitioner, one neighbor in particular routinely

allowed his dog to defecate on petitioner’s yard.     Petitioner

claims that the police habitually failed to stop the harassment

and vandalism to which he was subjected.     Petitioner considered

that he was a victim of racial profiling.     At one point,

according to his testimony, the police told him:     “We’re looking

for Mexicans like you with drugs and guns.”     After one particular

altercation with his neighbor, petitioner was arrested and

incarcerated for 4 days.   Petitioner testified that the police in

Coos Bay refused to prosecute his neighbor for harassment,

although the neighbor taunted petitioner and sprayed him with

pepper mace.   Petitioner introduced supporting photographs and

correspondence concerning the failure of local authorities to

prosecute after he had been sprayed.     In 1998, petitioner sold

his house in Coos Bay, Oregon.    Explaining why he sold the house,

petitioner said:   “police started following me around town, and

they had tapped my phone line, and I just felt like I couldn’t

live there safely anymore, so I fled and moved up to Washington”.
                               - 4 -

      Petitioner claims a casualty loss of $48,890.15.1

                              OPINION

A.   Long-Term Capital Gain

      Petitioner’s investment with Fidelity Investments in 1997

was in shares of a mutual fund.   The mutual fund’s asset

allocation, as of December 31, 1997, was 33 percent stock, 60

percent bonds, and 7 percent short-term securities.   Petitioner

argues that because line 5 instructs the taxpayer to include

“gross dividends and/or other distributions on stock”, the $5,603

long-term capital gain does not belong on line 5 of Schedule B

(emphasis added).   Since the distribution in question came from a

mutual fund with an asset allocation of 60 percent in bonds,

petitioner argues that he need not include on line 5 the amount

of the capital gain distribution from shares of this mutual fund.

      Section 61(a) provides that gross income includes “all

income from whatever source derived,” unless otherwise provided.

Section 61(a)(7) specifically provides that dividends are

included in gross income, and section 61(a)(3) provides that

gross income includes gains derived from dealings in property.

      1
       This figure represents the net amount claimed after
applying the limitation provisions of sec. 165(h)(1) and (2),
which reduces the gross amount claimed, $50,781.23, by $1,891.08.
At trial, petitioner claimed that he had made improvements to the
house, increasing its adjusted basis from $40,000 to $50,781.23.
On Form 4684, Casualties and Thefts, petitioner listed the value
of his house before the casualty as $50,781.23, and stated that
the value of the house after the casualty was zero, although he
sold the house the following year for $39,500.
                               - 5 -

The definition of gross income in the income tax law is inclusive

on its face, and the concept of inclusiveness is long

established. See Commissioner v. Glenshaw Glass Co., 348 U.S.
426, 429-430 (1955).   As to distributions of capital gain

dividends (defined in section 852(b)(3)(C)), by regulated

investment companies or mutual funds, section 852(b)(3)(B)

states:   “A capital gain dividend shall be treated by the

shareholders as a gain from the sale or exchange of a capital

asset held for more than 1 year.”   Section 1222(3) states that

the term “long-term capital gain” means “gain from the sale or

exchange of a capital asset held for more than 1 year”.   Net

long-term capital gains are subject to tax at the preferential

rates set forth in section 1(h).

     Consistent with this statutory mandate, Form 1040 (1997)

U.S. Individual Income Tax Return, Schedule B, Interest and

Dividend Income, and Schedule D, Capital Gains and Losses,

together ensure that capital gain distributions are taxed.    In

addition to instructing the taxpayer to “Include gross dividends

and/or other distributions on stock here”, line 5 of Schedule B

also states:   “Any capital gain distributions and nontaxable

distributions will be deducted on lines 7 and 8”.   The tax form

clearly provides that all capital gain distributions (as well as

nontaxable distributions) must be listed on line 5, and there is

no reasonable argument that distributions on shares of mutual
                               - 6 -

funds are exempt from this requirement in whole or in part.     The

pattern of the form is that capital gain distributions are

included with other items on line 5 of Schedule B, are deducted

on line 7 of Schedule B, and are included on line 13 of Schedule

D.   The form is certainly comprehensible and results in capital

gain dividends’ being taxed at appropriate rates.

      Moreover, even if the schedule had provided misleading or

erroneous information, the law is well settled that the

authoritative sources of Federal tax law are the statutes,

regulations, and judicial decisions, not informal publications or

instructions of the Internal Revenue Service.   Casa De La Jolla

Park, Inc. v. Commissioner, 94 T.C. 384, 396 (1990); Zimmerman v.

Commissioner, 71 T.C. 367, 371 (1978), affd. without published

opinion 614 F.2d 1294 (2d Cir. 1979); Green v. Commissioner, 59
T.C. 456, 458 (1972); Graham v. Commissioner, T.C. Memo. 1995-

114; see also Adler v. Commissioner, 330 F.2d 91, 93 (9th Cir.

1964), affg. T.C. Memo. 1963-196.   Accordingly, petitioner’s

capital gain distribution from his mutual fund holding during the

year in issue is includable in his income as long-term capital

gain and properly should have been reported on line 5 of Schedule

B, of his income tax return for 1997.

B.   Casualty/Theft Loss

      Under section 165(a) and (c)(3), subject to limitations, an

individual is permitted a deduction for a loss that arises from
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“fire, storm, shipwreck, or other casualty, or from theft.”

Personal casualty or theft losses are deductible only to the

extent that the loss exceeds personal casualty gains and $100

and, additionally, 10 percent of adjusted gross income.    Sec.

165(h)(1) and (2).   Casualty losses are deductible in the year

the loss is sustained.   Sec. 165(a); sec. 1.165-7(a)(1), Income

Tax Regs.   A casualty loss is 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.”   Sec. 1.165-1(d)(1), Income Tax

Regs.

     The term “other casualty” in section 165(c)(3) is not

expressly defined in either the statute or the regulations.    This

Court construes the term “other casualty” in section 165(c)(3) by

applying the rule of ejusdem generis.     Maher v. Commissioner, 76
T.C. 593, 596 (1981), affd. 680 F.2d 91 (11th Cir. 1982); Dodge

v. Commissioner, 25 T.C. 1022, 1024 (1956).    Under this rule of

statutory construction, general words that follow the enumeration

of specific classes are construed as applying to things of the

same general class as those enumerated.    Thus, in order for the

loss to be deductible, the taxpayer must prove that the

destructive event or happening was similar in nature to a fire,

storm, or shipwreck.   Accordingly, “other casualty” denotes “‘an

undesigned, sudden and unexpected event’”, Durden v.
                               - 8 -

Commissioner, 3 T.C. 1, 3 (1944) or a “sudden, cataclysmic, and

devastating loss”, Popa v. Commissioner, 73 T.C. 130, 132 (1979).

Conversely, the term “excludes the progressive deterioration of

property through a steadily operating cause.”     Fay v. Helvering,

120 F.2d 253 (2d Cir. 1941), affg. 42 B.T.A. 206 (1940).

      Petitioner described his loss at trial, saying:       “It’s a

loss of the money I had invested in the house in that town,

because the police forced me to leave the town.     So it’s

deprivation of rights, and loss.”    In sum, petitioner argues that

because of the hostility and racism directed at him by the

citizens and police of Coos Bay, he is entitled to a casualty

loss deduction for the alleged decline in value of his house.

     Petitioner’s asserted loss is not the type of loss

contemplated by section 165(c)(3).     As stated above, section

165(c)(3) contemplates a sudden or cataclysmic event.       Harassment

does not qualify as a sudden or cataclysmic event.     In

Kalbfleisch v. Commissioner, T.C. Memo. 1991-61, the taxpayer

claimed a casualty loss with regard to his rent expense on

account of harassment he endured from his neighbors and fellow

workers.   We denied a casualty loss deduction because there was

no sudden identifiable outside force:

     The claimed casualty loss with regard to petitioner’s
     rent expense does not satisfy the statutory requirement
     that there be a sudden identifiable outside force * *
     * . Assuming that petitioner’s allegations of
     continuous harassment by neighbors and fellow workers
     deprived him of peaceful usage of his apartment, we
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     find that such harassment, in and of itself, does not
     fall under the definition of a casualty loss.
     Petitioner’s remedy from the harassment and vandalism
     to his peaceful enjoyment would be found in civil or
     criminal remedies, but not in the Internal Revenue
     Code. [Id.]

     Furthermore, this Court has repeatedly held that “physical

damage or destruction of property is an inherent prerequisite in

showing a casualty loss.”   Citizens Bank v. Commissioner, 28 T.C.
717, 720 (1957), affd. 252 F.2d 425 (4th Cir. 1958); see also

Chamales v. Commissioner, T.C. Memo. 2000-33.     The Court of

Appeals for the Ninth Circuit, to which an appeal in the present

case would lie, has adopted this rule requiring physical damage.

See, e.g., Kamanski v. Commissioner, 477 F.2d 452 (9th Cir.

1973), affg. T.C. Memo 1970-352; Pulvers v. Commissioner, 407
F.2d 838, 839 (9th Cir. 1969), affg. 48 T.C. 245 (1967).

     Petitioner has offered no evidence showing any serious

physical damage or destruction to his property.    Petitioner made

no attempt to quantify the damage, if any, to his property from

the defecation of his neighbor’s dog.   We are not even convinced

that any such damage would have exceeded the $100 threshold of

section 165(h)(1).   Accordingly, we find that petitioner is not

entitled to a casualty loss for 1997.

     A loss arising from theft generally is allowable as a

deduction under section 165(a) for the taxable year in which the

loss is sustained.   Sec. 1.165-8(a)(1), Income Tax Regs.   Whether

a theft within the meaning of section 165 has occurred “depends
                               - 10 -

upon the law of the jurisdiction wherein the particular loss

occurred.”    Monteleone v. Commissioner, 34 T.C. 688, 692 (1960).

      Petitioner essentially conceded that he is not entitled to a

theft loss.    At trial, petitioner described the nature of the

loss, saying:    “I don’t know how you would classify it, but it’s

not really a theft.    It’s a loss of the money I had invested in

the house in that town, because the police forced me to leave the

town.   So it’s deprivation of rights, and loss.”

      Regardless of the conflicts petitioner may have had with his

neighbors and the police in Coos Bay, his house was not the

subject of a theft.    On the contrary, in 1998 he sold the house

for $39,500, little less than the price for which he purchased

it.   Accordingly, we hold that petitioner is not entitled to a

theft loss deduction for 1997.

      To reflect the foregoing,

                                          Decision will be entered

                                     for respondent.