Category: Individuals Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Issue A taxpayer currently (in 1998) discovers damage caused by the 1994 Northridge earthquake. How to deal with the casualty loss--amend 1994 or take the loss currently? Answer It is necessary to claim a casualty loss in the year it is incurred. Reg. Sec. 1.165- 1(d)(1). Thus, current discovery of additional damage from the 1994 earthquake is simply a redetermination of the damages existing at that time. An amended return should be filed. There is a case in which a taxpayer discovered previously-unknown damage to a driveway due to a flood five years previous. The discovery was made too late to amend the return for the year of the casualty. The taxpayer was denied any loss for the additional damage. Here, the fact of the loss had been established and it was simply a question of determining the correct amount. This is really no different from any other determination that goes into filing a tax return and is thus subject to the same statute of limitations as everything else. See Allen v. Comr., 49 TCM 238 (1984). On the other hand, contrast the Allen holding with that of Barret in which the taxpayer owned trees damaged by a freeze in Florida. For the year of the freeze and for two years thereafter the taxpayer attempted to salvage the trees through some type of treatment program. When it became apparent that the treatment was ineffective, the taxpayer abandoned the efforts and claimed a loss at that time. The court held that the casualty occurred when the fact of the loss became ascertainable in the later year. See U.S. v. Barret, 202 F. 2d 804 (5th Cir. 1953), aff'g 103 F. Supp. 730 (D. La. 1952). I think the situation at hand should fall under the general rule as amplified by Allen (i.e., deduct in the year of loss or never) rather than rather odd factual pattern of Barret. |
