Sheldon Portman and Marion G. Portman v. United States

Plaintiffs-taxpayers, Sheldon and Marion Portman, brought this suit for a tax refund after the Internal Revenue Service disallowed their deduction for a “casualty” loss under section 165(c)(3) of the Internal Revenue Code. In December 1973, the taxpayers bought a new home in San Jose, California. Soon after moving into the house, the structure began settling causing extensive damage. The damage included the cracking of the foundation, cracking of interior and exterior walls, and settling of walks and landscaping in front of their home. This was caused by densification of the soil under the house which in turn was the product of water saturation of the soil. The only issue on this appeal is whether the Portmans sustained a casualty loss within the meaning of section 165(c)(3). This section allows deductions for loss of nonbusiness property arising from “fire, storm, shipwreck, or other casualty.” “[OJther casualty” was defined by this court in United States v. Rogers, 120 F.2d 244, 246 (9th Cir. 1941):

The Portmans contend that unusually heavy rains for the period October 1973 to February 1974 was an unforeseen occurrence or “casualty” which caused the damages. The rainfall for…