Jennifer L. Mandel and Eric P. Mandel, Relators v. Commissioner of Revenue
888 N.W.2d 144
Minn.2016Background
- Jennifer and Eric Mandel bought a Minnetonka home in May 2010 for $391,000 and suffered water intrusion damage on March 22, 2011; they spent $27,411 on repairs.
- In March 2012 Reliatel Appraisals produced retrospective appraisals valuing the home at $400,000 (pre-loss) and $298,000 (post-loss), implying a claimed loss of $102,000.
- The appraiser reduced post-loss value by applying a 2.6 multiplier to estimated repair costs (including $10,000 in new landscaping to prevent future flooding) to account for buyer reluctance to buy water-damaged homes.
- The Mandels claimed a casualty-loss deduction (federal and thus Minnesota) based on the appraisal; Commissioner audited and limited the deduction to repair costs actually incurred ($27,411), producing an allowed deduction of $7,658.
- Tax Court granted the Commissioner’s motion for summary judgment, holding the Reliatel post-casualty appraisal was not a “competent appraisal” under Treas. Reg. § 1.165-7(a)(2)(i) because it included (1) future capital improvements and (2) temporary buyer stigma; Mandels appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Reliatel post-casualty appraisal was a “competent appraisal” under Treas. Reg. § 1.165-7(a)(2)(i) | Reliatel complied with appraisal standards; included only repairs needed to fix and protect the home; buyer resistance reflects actual market behavior and can be reflected | Appraisal improperly included costs of future capital improvements and psychological buyer resistance, contrary to the regulation limiting deductible loss to actual damage | Appraisal was not competent; it impermissibly included future improvements and temporary buyer stigma |
| Whether temporary buyer resistance may be used to calculate post-casualty value when only one property was damaged and no general market decline exists | Buyer resistance here was effectively permanent or at least real market effect; thus it may be considered to measure loss in value | Buyer resistance was temporary stigma, not a permanent physical change; regulation and precedent exclude such psychological, transient effects | Buyer resistance here was temporary and not includable; only permanent physical changes or location changes may justify market-impact adjustments |
| Whether summary judgment for the Commissioner was appropriate after appraisal was deemed incompetent | Mandels argued that viewing facts in their favor the appraisals prove a casualty loss and no genuine issue of material fact exists for summary judgment denial | Commissioner relied on prima facie validity of his determination and absence of competent appraisal evidence to support claimed deduction | Summary judgment for Commissioner affirmed: no competent appraisal means Mandels lacked evidentiary support for claimed deduction |
Key Cases Cited
- Finkbohner v. United States, 788 F.2d 723 (11th Cir. 1986) (distinguishes temporary buyer stigma from permanent location-based value changes; limits use of buyer-resistance evidence)
- Pulvers v. Commissioner, 407 F.2d 838 (9th Cir. 1969) (casualty deduction limited to physical damage, not intangible effects)
- Kamanski v. Commissioner, 477 F.2d 452 (9th Cir. 1973) (rejecting appraisal factors inconsistent with treasury regulation)
- Conner v. United States, 439 F.2d 974 (5th Cir. 1971) (approves use of appraisal values in certain catastrophic-damage contexts but does not endorse inclusion of buyer stigma)
- Peterson v. Commissioner, 30 T.C. 660 (Tax Ct.) (disallows deduction exceeding repair cost when excess is attributable to market fluctuation rather than actual damage)
- Thornton v. Commissioner, 47 T.C. 1 (Tax Ct.) (limiting casualty loss to actual damage; cited for excluding buyer-resistance effects)