Your assignment is to provide a written answer to the Tax Research Problem assigned from Chapters of the South-Western Text. FOR ELECTRONIC SUBMISSIONS, PLEASE MAKE EVERY EFFORT TO
Your assignment is to provide a written answer to the Tax Research Problem assigned
from Chapters of the South-Western Text. FOR ELECTRONIC SUBMISSIONS,
PLEASE MAKE EVERY EFFORT TO SUBMIT, IF POSSIBLE, EITHER A SINGLE
PDF OR A SINGLE WORD DOCUMENT OF THE ENTIRE PROJECT. THANK YOU.
Format
Your answer should be no more than 2-3 pages (approximately 250 words per page)
typed in a word processing program. The answer should be structured in
memorandum form as follows. (There are similar examples in Chapter 2)
TO: File of (taxpayer name). (Your audience is other CPAs in
your firm as peer review.)
FROM: (your name)
RE: (state issue)
DUE: (due date)
CONCLUSION: (short statement)
REASONING: (body – facts, state rule of law, reasoning (apply law to
taxpayer’s facts)) (conclusion repeated)
Attach 1-2 pages from CCH and 1-2 pages from Westlaw (plus the “History”) to
show that you were able to locate appropriate authority. Even if a internet
search engine is used, CCH and Westlaw must be used.
21.1
22
23
24
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33A Am. Jur. 2d Federal Taxation ¶ 16934
American Jurisprudence, Second Edition | August 2022 Update Federal Taxation ¶ 16000. Business and Nonbusiness Expenses—Bad Debts— Losses— Passive Activity Losses—Travel and Entertainment ¶ 16925. Casualty, Disaster, and Theft Losses.
¶ 16934. Auto accident damage.
References
Caution For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the
personal casualty and theft loss deduction is suspended, except for casualty losses incurred in a federally declared disaster (see ¶ 16926).
The below discussion applies only to business-related losses, personal
disaster-related losses, and pre-2018/post-2025 personal casualty and
theft losses. 21.1
Auto accident damage to taxpayer's auto is a casualty whether the auto is used in business or for pleasure (in pre-2018/post-2025 years), and whether the damage results from faulty driving by the taxpayer or the
driver of the vehicle with which taxpayer's auto collides, 22 or from
operation of taxpayer's auto by an unauthorized person. 23
But no casualty loss deduction is allowed for damage resulting from the willful act or willful negligence of a taxpayer or someone acting in his
behalf. 24 And damage caused by a collision in an auto race isn't a
casualty since such accidents are not unusual occurrences. 25
© 2022 Thomson Reuters. 33-34B © 2022 Thomson Reuters/RIA. No Claim to Orig. U.S. Govt. Works. All rights reserved.
Footnotes
I.R.C. § 165(h)(5)(A), as amended by Pub. L. No. 115-97, § 11044(a),
12/22/2017.
Reg. § 1.165-7(a)(3).
Shearer, George v. Anderson, (1927, CA2) 6 AFTR 6483, 16 F2d 995,
1 USTC ¶ 210, revg (1926, DC NY) 5 AFTR 6092, 13 F2d 258.
Reg. § 1.165-7(a)(3).
Ltr. Rul. 8227010.
End of Document
© 2022 Thomson Reuters. No claim to original U.S. Government Works.
RELATED TOPICS
Internal Revenue
Income Taxes Purpose of Theft Loss Deductions
View Full TOC
Federal Taxation
¶ 16000. Business and Nonbusiness Expenses —Bad Debts— Losses —Passive Activity Losses—Travel and Entertainment
¶ 16925. Casualty, Disaster, and Theft Losses.
¶ 16925. Casualty, Disaster, and Theft Losses.
¶ 16926. Casualty and disaster losses.
¶ 16927. Reporting a loss from casualty or theft— Schedule A; Forms 4684
¶ 16934. Auto accident damage. AMJUR FEDTAXN ¶ 16934 American Jurisprudence, Second Edition (Approx. 2 pages)
Westlaw. © 2022 Thomson Reuters Privacy Statement Accessibility Supplier Terms Contact Us 1-800-REF-ATTY (1-800-733-2889) Improve Westlaw/Report an error
View Full TOC
Federal Taxation
¶ 16000. Business and Nonbusiness Expenses —Bad Debts— Losses —Passive Activity Losses—Travel and Entertainment
¶ 16925. Casualty, Disaster, and Theft Losses.
¶ 16925. Casualty, Disaster, and Theft Losses.
¶ 16926. Casualty and disaster losses.
¶ 16927. Reporting a loss from casualty or theft— Schedule A; Forms 4684
,
Explanation When Can a Taxpayer Deduct Casualty Losses? Taxpayers may generally deduct losses resulting from damage to, or destruction of, property. However, several limits apply to deductions claimed by individuals, as well estates and trusts[1] for personal casualty and theft losses related to property that is not used in the taxpayer’s trade or business or in a transaction entered into for profit.
Generally, the deduction for personal casualty losses is limited to losses arising from fire, storm, shipwreck, or other casualty, or theft[2] (see Explanation: §165(c)). However, for tax years beginning in 2018 through 2025[3]
, the deduction for personal casualty and theft losses is limited only to losses attributable to federally declared disasters. A taxpayer may still claim personal casualty and theft losses not attributable federally declared disasters to the extent of any personal casualty and theft gains during 2018 through 2025.
The amount of the deduction for personal casualty losses is also subject to the following limits:
• the first $100[4] of each casualty or theft loss is not deductible, and • the personal casualty losses that exceed personal casualty gains are deductible only to the extent that
they also exceed 10 percent of adjusted gross income (AGI)[5] .
These limits apply only to nonbusiness property. Damage to business or income-producing property need not result from a casualty, theft, or disaster, and loss deductions are not subject to any floors.
A casualty loss is generally deductible only for the tax year in which the loss is sustained (see Explanation: §165(h)). However, a taxpayer that sustains a loss attributable to a federally declared disaster in a tax year may elect to deduct the disaster loss[6] in the preceding tax year. The amount of the loss taken in the preceding year cannot exceed the uncompensated amount of the loss. Thus, if the taxpayer is reimbursed from insurance or otherwise, or has a reasonable prospect of receiving reimbursement, then the amount of the loss claimed must be reduced (see Explanation: §165(i)).
A taxpayer may not deduct a loss unless the damaged property belongs to the taxpayer. For example, a taxpayer cannot deduct the amount paid to another individual for damage caused by the taxpayer's pleasure boat to another vessel[7] . A similar rule applies to automobile damages.
Passive Activities
The deduction of casualty losses generally is not limited by the passive activity loss rules[8] , even if the losses are sustained in a passive trade or business or rental activity. Instead, losses similar in cause and severity to those that recur regularly in the conduct of the passive activity are treated as passive activity deductions subject to limitations. See Explanation: §469.
Since a casualty loss incurred in a passive activity is not a personal casualty loss, it is not subject to the deduction limitations of IRC §165(h)[9] . Rather, it is treated in the same way as any other theft or casualty loss incurred in a trade or business or transaction entered into for profit. Also, the election to advance a disaster loss to the tax year preceding the loss year may apply to a casualty loss incurred in a passive activity. See Explanation: §165(i).
Citations
1. REVRUL62-197 2. §165(c)(3) 3. §165(h)(5) 4. §165(h)(1)
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1
When Can a Taxpayer Deduct Casualty Losses?
5. §165(h)(2) 6. §165(i) 7. DEC15351(M) 8. NOTICE90-21 9. §165(h)
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2
,
Regulation §1.165-7, Casualty losses
Reg. §1.165–7 does not reflect P.L. 97–248.
(a) In general
(1) Allowance of deduction Except as otherwise provided in paragraphs (b)(4) and (c) of this section, any loss arising from fire, storm, shipwreck, or other casualty is allowable as a deduction under section 165(a) for the taxable year in which the loss is sustained. However, see § 1.165-6, relating to farming losses, and § 1.165-11, relating to an election by a taxpayer to deduct disaster losses in the taxable year
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