Cox

MEMORANDUM OF OPINION, ORDER AND JUDGMENT

Plaintiff taxpayers purchased certain real property for a long-term investment. After this purchase, an oil field was discovered under the property, but a subsequent underground intrusion of salt water into the oil-bearing strata caused an oil well on the property permanently to cease oil production. The intrusion of salt water did not cause any damage to the surface of the land, it did not interfere in any way with the original purposes for which the real property was purchased, nor did taxpayers suffer any out-of-pocket expenses in connection with the discovery, production or loss of oil on their property.

This case presents a question of first impression, namely, whether under such circumstances, taxpayers may deduct as a casualty loss the decline in the appreciated value of the real property attributed to this underground intrusion. Under these facts, which are more fully set forth below, the Court grants the government’s motion for summary judgment.

In June of 1965 plaintiffs and others purchased for $250,000 approximately 80 acres near Livermore, California, for a long-term investment. They contemplated holding the land for…