The Tax Court held that the collapse of a poorly maintained retaining wall after a spring with heavy rain is not a casualty within the meaning of Section 165(c)(3) and the taxpayer is not entitled to a deduction under Sections 165(a) or (h) related to any loss from that casualty.
In Alphonso v. Commissioner
, T.C. Memo. 2016-130
, the government’s expert opined that existing structural and other deficiencies in and around that wall caused by progressive deterioration over at least 20 years would have and did cause the eventual collapse. Under cross-examination, the taxpayer’s expert conceded that the lack of proper maintenance of the wall and resulting deficiencies did not indicate a properly behaving retaining wall. Consultants had observed and pointed out the adverse conditions — through letters, reports, proposals and/or memoranda sent to the taxpayer —over a period of at least 20 years before the wall collapsed.
The Tax Court found that the retaining wall collapsed because of progressive deterioration in and around the wall that began at least 20 years before the collapse occurred in 2005. Following this determination, the court held the collapse of the retaining wall wasn’t a casualty within the meaning of Section 165(c)(3) and that the taxpayer wasn’t entitled to any deduction under Section 165(a) related to that collapse.
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.