DocketNumber: Docket No. 12444-79
Citation Numbers: 42 T.C.M. 1026, 1981 Tax Ct. Memo LEXIS 254, 1981 T.C. Memo. 492
Filed Date: 9/9/1981
Status: Non-Precedential
Modified Date: 11/21/2020
MEMORANDUM OPINION
HALL,
All of the facts have been stipulated in writing or orally at trial and are found accordingly.
Petitioners resided*255 in Cedar City, Utah, when they filed their petition.
Petitioners own a home in Iron County, Utah. In 1945 petitioners obtained a permit and drilled a culinary well on their property. The culinary well is the sole source of petitioners' water supply. The water pumped from the well comes from an underground basin or stratum of percolating water that lies beneath the general area in which petitioners reside.
In 1968 Union Field Irrigation Company ("Union Field") filed an application with the Department of Natural Resources, State of Utah, to drill an irrigation well on property adjacent to petitioners' residence. Union Field eventually drilled its irrigation well approximately 2,200 feet from petitioners' culinary well. Beginning in 1971, Union Field began to withdraw large quantities of water from its well, which greatly diminished the water flow on petitioners' property and prevented the percolation of a sufficient quantity of water into petitioners' well. Several times between 1971 and 1976, the water level in petitioners' well dropped so low that it was necessary for them to modify the culinary well to keep it functional. Finally, in 1976, petitioners' culinary well went*256 completely dry and became totally useless. In 1976 petitioners spent $ 3,007.23 to drill a new, replacement well on their land.
In 1977 petitioners filed suit in the District Court of Iron County against Union Field for recovery of the cost of drilling the new culinary well. 1 The lawsuit culminated in 1980 with petitioners receiving a $ 300 judgment plus costs of $ 322.88.
On their 1976 tax return, petitioners deducted $ 2,907.23 as a casualty loss. 2 In his statutory notice, respondent disallowed the entire deduction.
The issue is whether petitioners sustained a deductible casualty loss. Petitioners contend that they are entitled to a casualty loss deduction under
*258 Although the term "other casualty" if taken by itself might be susceptible to a broad interpretation, courts have delimited its scope by applying the doctrine of
*259 The facts before us simply do not exhibit the attributes commonly associated with deductible casualty losses. The drying up of petitioners' culinary well resulted from Union Field's tapping into the underground basin feeding petitioners' well and withdrawing substantial amounts of water from that basin. This depletion of petitioners' water supply occurred over a period of five years from 1971 to 1976. In essence, petitioners' loss was due to a "steadily operating cause,"
Even if petitioners' loss qualified as a casualty loss, they still would not be entitled to a deduction in 1976. A prerequisite to deducting a casualty loss is that the loss be sustained during the taxable year in issue. Where there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, no portion of the loss is sustained until it can be ascertained with reasonable certainty whether or not such reimbursement will be received.
[W]hile
*261 [I]t is respectfully submitted tht
Bearing in mind that the proceeding referred to did not even begin until 1977, it is apparent that a prospect of recovery did exist in 1976. It is this prospect of a recovery and not the actual realization of a recovery which is determinative.
To reflect the foregoing,
1. The facts averred in the complaint filed with the court are evidentiary admissions. See McCormick, Law of Evidence (2d ed. 1972), sec. 265; 2 Jones, The Law of Evidence (Gard ed. 1972), sec. 13:40. Consequently, we have incorporated these admissions into our findings of fact.↩
2. This amount represents the $ 3,007.23 expended by petitioners to drill a new culinary well minus the $ 100 limitation provided in
3. All statutory references are to the Internal Revenue Code of 1954, as in effect during the year in issue.↩
4.
(a) GENERAL RULE.--There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
(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. * * * ↩
5. For a road map of the legislative history of
6.
7. See also
8. In fact a judgment was eventually entered for petitioners in 1980.↩