On a cloudy day, Mr. Taxpayer was clearing brush from his yard in his Malibu, California home. To expedite the process, Mr. Taxpayer opted to burn the brush. To prevent the fire from getting out of control, Mr. Taxpayer brought out a fire extinguisher. Once Mr. Taxpayer lit the brush, the fire got out of hand and destroyed Mr. Taxpayers place of residence as well as his neighbor’s house. Mr. Taxpayer purchased the house six months prior to the incident in question for $900,000. The home was purchased for $900,000 six months prior to the event. The fair market value for the home was $1,000,000. Mr. Taxpayer’s taxable income for the year was $200,000. Mr. Taxpayer was not compensated for his losses by insurance.
Issue and Conclusion 1
Is…show more content… Commissioner of Internal Revenue, 46 T.C. 302 (1966) provides further guidance on the appropriate tax treatment. In the case, the IRS argued that a landslide is not a casualty as it is an anticipated hazard and there were mistakes made by the contractor during construction. The first key determination of in relation to this case is foreseeability must be taken into account; however, it is not a decisive factor. Per the example in the case, a taxpayer may take a casualty loss deduction on a house destroyed by a hurricane even if there was warning from the meteorologists prior. In terms of Mr. Taxpayer, there was a foreseeable concern that the burning the brush may get out of hand, hence the reason Mr. Taxpayer brought out a fire extinguisher. However, as Harry Heyn established, this alone does not result in the barring of a casualty loss deduction. Similar to the Blackmon case, Heyn outlines that foreseeability does factor in when gross negligence is at hand. As established in the previous part, Mr. Taxpayer did not act in gross negligence. Therefore, even though there was a potential for the fire to blaze out of control and this is considered a foreseeable consequence, this does not bar Mr. Taxpayer from taking the
