What is a lease? Most of us have a “seat of the pants” answer—a writing that permits a person we call tenant to occupy exclusively all or part of realty owned by someone else (who we call landlord or owner) on whatever terms and conditions the parties negotiate and the law requires be included or excluded.

But Judge Chiechi spends a lot of time parsing what a lease does or does not permit in Christina A. Alphonso, 136 T.C. 11, released 3/16/11.

Christina was a tenant-shareholder in a qualified cooperative housing corporation (see Section 216) known as Castle Village Owners Corp.(CV). Her stock ownership entitled her to occupy a certain residential apartment in an apartment building owned by CV. To memorialize the terms and conditions of Christina’s occupancy, she and CV entered into what is known as a “proprietary lease”, “proprietary” because of her (admittedly minimal) ownership interest in CV.

CV’s realty sits far above the waters of the lordly Hudson River, a city upon a hill, held in place by a massive retaining wall. In the tax year in question, the retaining wall gave way (whether as a result of natural wear, tear and deterioration occurring as the result of the passage of time and the elements, or as a sudden, unexpected and extraordinary event we need not decide, as Judge Chiechi didn’t have to decide that either), and great was the fall thereof.

Christina’s proprietary lease called for her to pay her share of whatever it took to operate, repair, maintain, fix up or improve CV’s property. And Chrstina did; she paid more than $25,000 to CV to put the property back. Now a qualified cooperative housing corporation is a C corp, not an S (and CV had far too many shareholders to elect S treatment), so the casualty loss, if casualty it was, cannot flow through to the shareholders.

But could Christina take a Section 165 deduction as a lessee of the property? No, says Judge Chiechi. All the lease does is let Christina use the area that collapsed, but doesn’t demise it to her or give her anything more than a revocable license, although the Judge didn’t use those words.

Judge Chiechi said “The model proprietary lease did not provide that Castle Village leased to petitioner any portion of the Castle Village grounds and did not provide that Castle Village granted to her any other property interest in those grounds. Although petitioner, like the other stockholders of Castle Village, had the right to use the Castle Village grounds subject to the Castle Village board house rules regarding the use of those grounds that were made part of the model proprietary lease by paragraph 13 thereof, we conclude that that lease and those rules did not grant to petitioner a leasehold interest, an easement, or any other property interest in the Castle Village grounds that entitles her to a deduction under section 165(a) and (c)(3) for damage to those grounds.” 136 T.C. 11, at p. 22.

Christina’s argument that the pass-though provisions of Section 216 should be judicially expanded from mortgage interest and real estate taxes to include the monies paid to fix the collapse fared no better.

Judge Chiechi said: “As the Supreme Court of the United States has held, ‘Where Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of evidence of a contrary legislative intent.’ Andrus v. Glover Constr. Co., 446 U.S. 608, 616-617 (1980). Petitioner does not cite any legislative history establishing that Congress intended section 216(a) to permit the stockholders of a cooperative housing corporation to deduct any of such corporation’s expenses that it paid or incurred except for the two deductions that Congress expressly allowed in that section.” 136 T.C. 11, at pp. 25-26.

So Christina’s case collapses like the retaining wall, and her deduction is disallowed.