		Average Annual	Yearly Deviation
	Total Annual	Precipitation	From
Year	Precipitation	To Date	Annual Average
1889	38.33	38.33	0
1890	31.82	35.08	- 3.26
1891	37.05	35.73	+ 1.32
1892	43.47	37.66	+ 5.81
1893	32.13	36.56	- 4.43
1894	35.40	36.36	- .96
1895	41.22	37.06	+ 4.16
1896	33.64	36.63	- 2.99
1897	30.21	35.91	- 5.70
1898	50.25	37.35	+ 12.90
1899	32.52	36.91	- 4.39
1900	35.78	36.81	- 1.03
1901	24.76	35.89	- 11.13
1902	40.52	36.22	+ 4.30
1903	39.22	36.42	+ 2.80
1904	47.73	37.12	+ 10.61
1905	42.55	37.44	+ 5.11
1906	32.85	37.19	- 4.34
1907	37.59	37.21	+ .38
1908	39.48	37.32	+ 2.16
1909	40.32	37.47	+ 2.85
1910	37.42	37.46	- .04
1911	31.78	37.22	- 5.44
1912	31.96	37.00	- 5.04
1913	34.99	36.92	- 1.93
1914	43.20	37.16	+ 6.04
1915	47.20	37.53	+ 9.67
1916	42.08	37.69	+ 4.39
1917	29.31	37.40	- 8.09
1918	34.24	37.30	- 3.06
1919	31.23	37.10	- 5.87
1920	41.13	37.23	+ 3.90
1921	40.87	37.34	+ 3.53
1922	31.52	37.17	- 5.65
1923	37.28	37.17	+ .11
1924	33.43	37.07	- 3.64
1925	37.80	37.08	+ .72
1926	34.93	37.03	- 2.10
1927	43.95	37.21	+ 6.74
1928	41.00	37.30	+ 3.70
1929	42.66	37.43	+ 5.23
1930	28.56	37.22	- 8.66
1931	41.15	37.31	+ 3.84
1932	27.07	37.08	- 10.01
1933	27.11	36.86	- 9.75
1934	27.15	36.65	- 9.50
1935	33.86	36.59	- 2.73
1936	21.51	36.27	- 14.76
1937	24.84	36.04	- 11.20
1938	36.97	36.06	+ .91
1939	34.72	36.03	- 1.31
1940	32.55	35.96	- 3.41
1941	46.62	36.16	+ 10.46
1942	41.02	36.25	+ 4.77
1943	27.38	36.09	- 8.71
1944	49.64	36.33	+ 13.31
1945	35.26	36.32	- 1.06
1946	31.56	36.23	- 4.67
1947	46.41	36.41	+ 10.00
1948	30.94	36.32	- 5.38
1949	41.93	36.41	+ 5.52
1950	29.99	36.30	- 6.31
1951	46.22	36.46	+ 9.76
1952	34.61	36.43	- 1.82
1953	20.93	36.19	- 15.26
1954	27.52	36.06	- 8.54
1955	30.66	35.98	- 5.32
1956	25.92	35.83	- 9.91
1957	36.71	35.85	+ .86
1958	39.85	35.90	+ 3.95
1959	38.49	35.94	+ 2.55
1960	32.63	35.89	- 3.26
1961	60.25	36.23	+ 24.02
1962	36.99	36.24	+ .75
1963	24.65	36.08	- 11.43
1964	38.82	36.12	+ 2.70
1965	47.74	36.27	+ 11.47
1966	27.21	36.15	- 8.94
1967	48.69	36.31	+ 12.38
1968	31.96	36.26	- 4.30

*323 104

The total precipitation per month for Kansas City in 1963 taken by the United State Weather Bureau, as compared with the monthly record mean, is as follows:

	Actual		Variation from
Month	Precipitation, 1963	Record Mean ^{record Mean}
January	0.59	1.35	-.76
February	0.41	1.53	-1.12
March	1.94	2.61	-.67
April	0.80	3.31	-2.51
May	4.17	4.70	-. 53
June	3.21	4.73	-1.52
July	4.40	3.82	+.58
August	4.08	3.94	+.14
September	1.44	4.17	-2.73
October	0.94	2.80	-1.86
November	2.30	1.89	+.41
December	0.37	1.40	-1.03

105

In their 1963 joint income tax return petitioners deducted a loss of $13,837, due to a claimed casualty resulting from a 1963 drought. Respondent disallowed the loss in his statutory notice of deficiency.

Opinion

Petitioners' home sustained certain structural damage. They argue that said damage was the direct result of a drought which occurred in the Kansas City area in 1963; and that therefore the loss incurred is a deductible casualty loss within the meaning of section 165(c). *324 on the other hand, argues that a drought did not cause the damage to the residence, but rather that the loss was due to a continuous deterioration of the underlying soil and a poorly structured foundation, which made cracks in, and the subsiding of the structure inevitable. Respondent does not contend that there would be no deductible loss if a drought occurred and caused the damage.

*325 The trial was replete with graphic data and testimony of expert witnesses concerning the structure of the Charno residence and whether the damage was due to a progressive deterioration in the foundation. Bryan Horner (hereinafter sometimes referred to as Horner), petitioners' first witness, testified that the foundation was adequate. His testimony, however, was largely based on the belief that the builder was George Siemens, a well-known home contractor in Kansas City. Respondent offered testimony from which we have found that the home was built by Robert Seaman, who had had no experience in foundation construction except for his previous construction of two other homes.

Aside from petitioner, whose testimony was based on the same false impression, the only other of petitioners' witnesses who testified with regard to the structure of the house's foundation was Leon Maslan (hereinafter sometimes referred to as Maslan), an admittedly expert witness. Much of Maslan's testimony was directed to how well constructed the house was in light of what he considered to be the acceptable practice in 1946, not in light of present-day standards which, Maslan himself admitted, require him to recommend*326 a different mode of foundation design than that of the Charno residence. He testified on direct examination that the foundation was at a proper depth and in keeping with construction practices in 1946. He also stated that the house was well constructed for the time and indicated that diagonal construction of the subflooring and sheeting on the exterior part gave the structure more stability than is normal in today's homes. Maslan personally recommended in 1946, however, that foundations be placed at a depth considerably lower than that of the Charno residence. With regard to lack of footings or reinforcements in the foundation walls, he stated that it was not sound practice and that he would not recommend it today. But both he and Willard S. Norton (hereinafter sometimes referred to as Norton), respondent's expert witness, testified that the lack of footings and reinforcements, which are utilized when soil has poor bearing capacity, was not significant, since the 106 weight bearing capacity of the soil was sufficient to support the weight of the house.

In contrast to Maslan, respondent's expert witness Norton considered the foundation to be poorly constructed. He testified*327 succinctly, that:

It is bad. I don't believe I can recall offhand except a building that was put up by somebody who was just picking up material here and there and putting them together, have I ever seen anything so badly designed or situated. I would say this, to continue though, comparing this to a foundation designed by any builder who has had experience this has to be the worst.

He also contended that the damage was due to a gradual deterioration of the foundation.

It is incontestable that the depth of the foundation (on the outside perimeters of the west wing and part of the main portion of the house) did not meet the depth level required by the Kansas City Building Code. The Kansas City Building Code's requirement of 3 feet 6 inches was, according to respondent, established, in part, to assure that foundations in the area were below the frost-line depths, in order to avoid strains and stresses on structure which result from expansion and contraction of soil acting on houses with foundation depths above the line.

At trial petitioners disputed that the frost line actually extended below the foundation depths of the Charno residence. They claimed that the requirement of*328 the above Code provision was overly cautious and in support thereof point to the testimony of Maslan that the maximum frost penetration in the Kansas City area was 15 inches. We cannot, however, put much weight on Maslan's assertions, when he admittedly recommended in 1946 that all foundations be at a 36-inch depth, presumably to prevent frost-action damage. Certainly he did not practice what he preached at trial.

We find more reliable a data chart prepared by the United States Weather Bureau in 1938, which shows the maximum frost penetration to be from 18 to 35 inches in an area bounded at one point by Kansas City. Also, Norton had observed frost peneration at a depth in excess of 30 inches in Kansas City. In light of these facts and the provisions of the Kansas City Building Code, which we believe to be weighty since there is no evidence that the figures established therein were placed at a meaningless level, we conclude that the foundation perimeter of at least the west wing, which was approximately 15 inches below finished grade, and most probably the foundation perimeter on the main house were not below the depth of frost penetration.

The question still remains, however, whether*329 the lack of extension below the frost line caused the damage rather than a drought. In this regard, Maslan testified that the failure of the foundation to go below the frost line and the consequent frost action which might occur did not cause the damage. According to him, the damage would have occurred even if the foundation walls had gone down three and one-half feet, because the true cause of damage was the fact that there was a great differential between the peripheral foundation walls and the deeper foundation walls surrounding the basement. Differential settlement due to frost, moreover, would have occurred in the spring when thawing and freezing occurs and not in the fall when this damage did occur. Norton agreed in part to this when, on cross-examination, he stated that frost action would play a minor role in the deterioration of this foundation. Furthermore, if frost were the cause of the damage it would seem highly probable that there would have been movement after the sudden subsidence in the fall of 1963. This did not occur.

The above evidence gives little weight to frost action as a causative factor. We think over the years it can be said that such action did in all probability*330 contribute to a weakening of the foundation and structure but that, as to the sudden damage, frost action was not the cause. Moreover, as of 1963, despite what may have been the structural impediments, the house evidenced no damage and this fact would tend to indicate that the structure was not undergoing progressive deterioration from a faulty structure which either gradually caused the damage or suddenly did. At any rate, we find entirely credible George's statement that the damage was sudden. It is realistically supported by the fact that he spent over $17,000 on improvements after buying the house in 1961.

The true structural impediment in the house, both parties agree, was the differential between the outer and inner foundation walls. Such a differential increases the potential for settlement of different portions of the house from drought or frost action. We note that the fact that drought would 107 cause damage which would otherwise have not taken place had the residence been structured differently does not preclude a finding of a casualty loss. Harry Heyn, 46 T.C. 302">46 T.C. 302 (1966). Cf. Matheson v. Commissioner, 54 F. 2d 537 (C.A. 2, 1931), affirming*331 [Dec.c. 5732] 18 B.T.A. 674">18 B.T.A. 674 (1930).

Both parties are in essential agreement about most of the basic qualities of the soil underlying the Charno residence. It is highly unstable and subject to shrinkage if the moisture in the soil is withdrawn and that soil is under pressure from above. Respondent contends, however, that said soil could not have been significantly affected by rainfall in 1963. He points to the testimony of Murray B. Blume (hereinafter sometimes referred to as Blume), his expert in soil analysis, that the soil at the surface and for a few feet thereunder was highly desiccated and would have to be inundated to cause an increase in moisture. He also points to Blume's testimony that the amount of rainfall would not have a significant effect on the soil's desiccation, which is a continuous process. Therefore, according to respondent, it would follow that the soil was in such a state of desiccation that significant shrinkage could not occur. We do not agree.

As we interpret Blume's analysis of the effect on the soil of a below average rainfall, it related to desiccation and possible shrinkage of the soil at the surface and immediate subsurface. Significantly, *332 Blume himself agreed that the changes in the soil which affect a foundation occur below that foundation. In this regard, it should be noted that there was a large crack in the basement floor with a 2-inch drop at one point, indicating that significant subsidence took place in the soil below the foundation walls of the basement.

We find it hard to believe that part of Blume's testimony upon which respondent relies for his basic proposition. Blume's assertion that desiccation is continuous unless this soil is inundated, and thus that rainfall could have no effect, would lead to the fallacious conclusion that this soil has been losing water since the "year one" and should have been totally desiccated long before the year in issue.

In another not wholly unrelated respect Blume's testimony presents problems for us. He testified, contrary to Maslan, that the soil was a type through which water would not rise by capillary action from the water table below. He also indicated indirectly on cross-examination that the soil at the surface and thereunder would not retain significant amounts of water and was relatively impermeable. ^{*333 not reach the soil between the water table level (which is unknown but definitely below 15 feet) and the surface, since moisture due to rainfall would not permeate from the surface downward or water rise from the water table below. Admittedly, however, the soil a few feet below the surface is not desiccated and has a water content. It would follow that the water at the lower depths has been there for a considerable period of time.}

*334 We find that this soil could be, and was, significantly affected by loss of moisture due to lack of rainfall, both at the surface and, more importantly, below. This accepted, the overriding fact *335 In light of the facts that the soil underlying the residence is unstable and subject to shrinkage due to moisture loss; that the basement floor crack and other cracks evidence that soil subsidence did occur; and that we have found that the damage was not the result of frost action or a gradual deterioration of the foundation, the conclusion must follow inescapably, and we so hold, that a drought caused the damage to the residence. Lack of water reaching the soil by whatever means caused the soil to shrink and the resulting damage followed.

The only remaining issue to be decided is the amount of loss suffered by petitioners. Under section 1.165-7(a)(2), Income Tax Regs., *336 Petitioners' witness Horner testified that the fair market value of the residence immediately before and after the casualty was $55,000 and $42,500, respectively. His estimates were made in retrospect, since they were based upon an examination of the house in 1964 after the damage had occurred. In arriving at the $55,000 figure, he considered the purchase price of the home and the extensive improvements which had been made by petitioner. As to the $42,500 figure, he based it upon two factors. *337 Honer was familiar with this residence since he had sold it to petitioners. He also had been a real estate agent in the Kansas City area for many years and had a considerable amount of experience. However, his estimates were made retrospectively. Moreover, he based his pre-damage figure on the fallacious belief that George Siemens, a well-known contractor, built the home and this obviously makes it too high. We doubt, however, that his misconception affects to any great extent the validity of the post-damage estimate, since the fact that the house had evidenced extensive damage would nullify the effects of his belief that the home was well constructed due to the reputation of George Siemens. Considering his testimony, the initial cost of the residence, the improvements made thereto and all other factors in the record, we hold that the fair market value of the residence prior to the damage was $49,200. After the event, considering the considerable damage to the 109 residence and all other record factors, the fair market value was $41,100. Cohan v. Commissioner, 39 F.2d 540">39 F. 2d 540 (C.A. 2, 1930). Accordingly, the casualty loss is $8,100.

Decision will be entered under*338 Rule 50.

Footnotes

1. All statutory references are to the Code of 1954 unless otherwise indicated.↩
*. Record mean precipitation figures are long-term means for the period beginning in 1889.↩
2. SEC. 165. LOSSES. * * *
(c) Limitation on Losses of Individuals. -in the case of an individual, the deduction under subsection (a) shall be limited to -
(3) losses of property not connected with a trade or business, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft. A loss described in this paragraph shall be allowed only to the extent that the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100. For purposes of the $100 limitation of the preceding sentence, a husband and wife making a joint return under section 6013 for the taxable year in which the loss is allowed as a deduction shall be treated as one individual. No loss described in this paragraph shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return.↩
3. Q. Well, in the summertime, say there is a lack of rainfall, lack of precipitation which may happen in the summertime, vegetation seems to prosper, it may if there is a sufficient lack it may start to wilt and possibly die? A. Yes.
Q. If we took a garden hose and water it wouldn't it possibly revive the plants? A. Yes, sir. Q. Which means you are getting water down to that root system? A. Yes, sir, you are recharging it.
Q. Rainfall obviously performs the very same function as a garden hose? A. Yes, for roots that are close to the surface. Q. This could even be large trees, couldn't it?
A. The precipitation or artificial watering wouldn't be able to recharge roots that were under an impermeable surface. Generally agriculturalist will till the soil and aerate it to permit passage of water.
Q. If we get a heavy rainfall on this type of soil where does the water go?
A. If we have reasonable drainage it will drain over into the street gutter. Q. The ground will not absorb it?
A. Just a limited amount probably in the organic top soil will absorb a reasonable amount to water the grass.↩
4. Respondent noted on brief as a further possible cause of the damage that a new drainage system for the residence was constructed and may have prevented significant amounts of water from reaching the soil. Maslan, however, testified that this was not significant and we so find.
Respondent also noted that some of the pipe ducts under the house were uninsulated and may have caused moisture loss. We simply cannot believe that this was in any way significant, especially since the ducts apparently had been uninsulated for many years and no damage had occurred.↩
5. Sec. 1.165-7 Casualty losses. - * * *
(2) Method of valuation. (i) In determining the amount of loss deductible under this section, the fair market value of the property immediately before and immediately after the casualty shall generally be ascertained by competent appraisal. This appraisal must recognize the effects of any general market decline affecting undamaged as well as damaged property which may occur simultaneously with the casualty, in order that any deduction under this section shall be limited to the actual loss resulting from damage to the property.
(ii) The cost of repairs to the property damaged is acceptable as evidence of the loss of value if the taxpayer shows that (a) the repairs are necessary to restore the property to its condition immediately before the casualty, (b) the amount spent for such repairs is not excessive, (c) the repairs do not care for more than the damage suffered, and (d) the value of the property after the repairs does not as a result of the repairs exceed the value of the property immediately before the causalty.↩
6. Horner's estimate of the fair market value of the house after the damage took into account buyer reluctance to purchase the house due to the fact it had evidenced extensive settlement damage. This factor is quite different from the pure psychological resistance to the purchase of any property in an area due to particular occurrences such as prior floods or land slides which uniformly decrease the fair market value of all property. The latter sort of resistance may not be taken into account in determining the extent of the casualty loss. Joe B. Thornton, 47 T.C. 1">47 T.C. 1 (1966); Squirt Co., 51 T.C. 543">51 T.C. 543 (1969), affirmed per curiam 423 F. 2d 710 (C.A. 9, 1970); Clarence A. Peterson, 30 T.C. 660">30 T.C. 660 (1958); Harvey Pulvers, 48 T.C. 245">48 T.C. 245 (1967), affirmed per curiam 407 F. 2d 838↩ (C.A. 9, 1969).

Document Info

Docket Number： Docket No. 5149-66.

Citation Numbers： 30 T.C.M. 99, 1971 Tax Ct. Memo LEXIS 310, 1971 T.C. Memo. 22

Filed Date： 1/28/1971

Precedential Status： Non-Precedential

Modified Date： 11/21/2020

Authorities (4)

Cohan v. Commissioner of Internal Revenue , 39 F.2d 540 ( 1930 )

Matheson v. Commissioner of Internal Revenue , 54 F.2d 537 ( 1931 )

The Squirt Company v. Commissioner of Internal Revenue , 423 F.2d 710 ( 1970 )

Harvey and Florence Pulvers v. Commissioner of Internal ... , 407 F.2d 838 ( 1969 )

View All Authorities »