Harvey and Florence Pulvers v. Commissioner of Internal Revenue

Can taxpayers on their federal income tax return take a deduction for an “other casualty loss” when as a consequence of a nearby landslide that ruined three nearby homes, but did no physical damage to the property of taxpayers, with a resultant loss of value because of common fear the mountain might attack their resi dence and lot next? (There is yet no substantial impairment of ingress or egress on the street serving their home.) We agree with the tax court that they cannot.

Sec. 165, Internal Revenue Code of 1954 , so far as pertinent provides:

The tax court affirmed the commissioner’s determination that the taxpayers incurred no actual loss: that they suffered a hypothetical loss or a mere fluctuation in value.

It may be that the loss is all in the heads of taxpayers and of prospective purchasers, but that circumstance has resulted in a very substantial depreciation of value. (Of course, if the rest of the hill or mountain remains quiet for many years, some or most of the value would come back.) But we would agree with the Los Angeles County assessor that the value certainly went down. And, the finding that the loss was a “mere” fluctuation in value is enough to aggravate…