In Uncategorized on 07/14/2016 at 16:20

I allude once more to Rob’t Allen Zimmerman’s 1966 extravaganza, but in the singular, to tell the conclusion (for now) of the tale of Christina A. Alphonso, 2016 T. C. Memo. 130, filed 7/14/16.

You do remember Christina A., do you not?  No? The see my blogpost “A New York Cooperative Conundrum,” 3/18/11, and “A New York Cooperative Conundrum – Part Deux,” 2/6/13.

There now.

Well, Second Circuit kept Christina A. in the hunt for the gold by cobbling together a rationale that shares in a New York cooperative housing C Corp, coupled with a New York cooperative apartment proprietary lease, gave the shareholder-tenant a claim for a casualty loss of the C Corp’s property. Except the claim falls because Section 216 only allows a deduction for real estate taxes and mortgage interest, and the deduction can’t be stretched to cover a casualty loss.

Except there isn’t even a casualty loss here.

Judge Chiechi tells us why, after fifty pages of engineering reportage.

“The initial dispute between the parties is over whether the collapse of the retaining wall in question is a casualty within the meaning of section 165(c)(3).  As pertinent here, section 165(a) and (c)(3) allows an individual taxpayer to deduct ‘losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty’.   A loss is treated as sustained during the taxable year in which the loss occurs, as evidenced by closed and completed transactions and as fixed by identifiable events occurring in such taxable year.  Sec. 1.165-1(d)(1), Income Tax Regs.

“The term ‘other casualty’ in section 165(c)(3) refers to an event that shares characteristics with a fire, storm, or shipwreck.  A casualty is an event which is due to a sudden, unexpected, or unusual cause.  The progressive deterioration of property though a steadily operating cause is not a casualty.” 2016 T. C. Memo. 130, at pp. 51-52. (Citations omitted).

Even a sudden catastrophic collapse is not a casualty if caused by progressive deterioration. And even if wind and rain accelerate the collapse, that isn’t a casualty if the structure at issue was progressively deteriorated over time.

Christina A. claims it was the heavy rainstorm that caused the collapse, hence casualty. But her expert gets shredded, and IRS’s expert gets the judicial nod.

If watching someone’s case go down the drain gives you your jollies, read pp. 57-61. I will refrain from extracting any portion thereof. We’ve all of us been there, and it isn’t fun.

The rain didn’t help, but the C Corp’s Board of Directors knew for twenty years that the retaining wall was a-moulderin’ in the ground. And had bushelbasketsful of reports from reputable engineers and architects that said so. I’ve dealt with a number of those named in the opinion, and they’re players, not amateurs.

I myself well remember the Christmas night collapse of a plaza built over the same highway as Christina A.’s ill-fated retaining wall. And I represented the sponsor of the cooperative offering. But there, if my aging memory serves, the insurance carrier paid the whole freight.

  1. […] Taishoff, RAINY DAY WOMAN. “The rain didn’t help, but the C Corp’s Board of Directors knew for twenty years that […]


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