1981 Tax Ct. Memo LEXIS 487 | Tax Ct. | 1981
MEMORANDUM FINDINGNS OF FACT AND OPINION
DAWSON,
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly. The stipulation of facts and the accompanying exhibits are incorporated herein by this reference.
Norman H. Ruecker and Betty L. Ruecker (petitioners) are husband and wife, who resided in San Rafael, California at the time they filed their petition in this case. San Rafael is located in Marin County which is immediately north of San Francisco. Marin County is an area of marginal rainfall, receiving it mostly in the winter from November through February. Water is supplied to all residents by the Marin Municipal Water District from a system of five reservoirs which are designed to capture enough rain water run-off to serve the population for one year1981 Tax Ct. Memo LEXIS 487">*489 without depleting the reservoirs to a point where the following year's rainfall would be insufficient to meet the county's needs.
Petitioners built their home in Marin County in 1970 on previously bare hillside property. During the subsequent six years they substantially landscaped the property with trees, shrubs, plants and lawn. They also installed twelve separate irrigation systems, each with five to twelve sprinkler heads operated automatically by time clocks. Each system routinely ran for 20 to 30 minutes a day, every other day, during the spring and summer months.
During 1976 and 1977 there was a severe drought in Marin County. The capacity of the reservoir system had been based on one of the worst droughts of record which lasted from 1929 through 1933. The only other drought as severe as the one in 1976 and 1977 occurred between 1864 and 1868. Various voluntary water conservation measures were suggested by the Marin Municipal Water District during 1976, but petitioners continued using their extensive irrigation system throughout the entire year. As the drought continued into its second year, the Marin Municipal Water District instituted on February 11, 1977 very1981 Tax Ct. Memo LEXIS 487">*490 stringent water rationing rules. Each home in the county was allowed to consume only a certain number of gallons of water per day. A family of four, like the petitioners' family, was permitted to use only 148 gallons per day. Marin County residents had to adjust their living habits to this situation. Because normal toilet usage alone consumes about 100 gallons per day, most families flushed their toilets only once a day. Washing machine water was often used twice and, along with shower water, was saved for garden purposes.
Under these draconian water rationing rules the petitioners could not use their irrigation system. On February 11, 1977 the petitioners' lawn, shrubs, and plants were alive and healthy. By June of 1977, without the use of the sprinklers, the lawn, plants and shrubs had withered and died. The decrease in the fair market value of petitioners' property as a result of the drought was $ 2,000. They claimed a casualty loss in that amount on their Federal income tax return for 1977, and it was disallowed by the respondent.
OPINION
We must decide whether the petitioners are entitled to a casualty loss deduction under section 165(c)(3) for the death of the1981 Tax Ct. Memo LEXIS 487">*491 plants, shrubs and lawn caused by the drought.
Section 165(a) allows a deduction for any loss sustained during the taxable year which is not compensated for by insurance or otherwise. Section 165(c)(3) limits such losses for individuals to:
Losses of property not connected with a trade or business, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft. * * *
Such losses are allowed only to the extent that they exceed $ 100 for each casualty. The legislative policy behind section 165(c)(3) was "to allow the deduction only of those losses which may be considered extraordinary, nonrecurring losses, and which go beyond the average or usual losses incurred by most taxpayers in day-to-day living." S. Rept. No. 830, 88th Cong., 2d Sess. (1964), 1964-1 C.B. (Part 2) 505, 561.
To come within this section the petitioners must prove that the loss of their shrubs and plants resulting from the drought is an "other casualty." Although the term "other casualty," standing alone, might be susceptible to broad interpretation, the courts have narrowed its scope by applying the doctrine of
There have been several cases concerning whether a loss occasioned by a severe drought can constitute a casualty within the meaning of section 165(c)(3). In
Two cases have come before this Court involving the question of whether a drought is a casualty within the meaning of section 165(c)(3) and its predecessor,
Respondent's position on whether1981 Tax Ct. Memo LEXIS 487">*495 damages resulting from a drought are deductible by individuals as casualty losses has been somewhat ambiguous.
Generally, where a drought loss in sustained through the progressive and gradual deterioration of the property, a taxpayer cannot meet the "suddenness" standard for the loss to be considered a casualty within the meaning of the statute. However, on the particular facts of this case, we conclude that petitioners are entitled to deduct their drought related loss under section 165(c)(3). Here the undisputed facts clearly demonstrate that Marin County in 1977 suffered its worst drought since 1868; 4 that petitioner's plants and shrubs were healthy on February 11, 1977 because they were irrigated; that thereafter a municipal ordinance prohibited the1981 Tax Ct. Memo LEXIS 487">*497 watering of plants; that by June of 1977 all of the lawn, plants and shrubs had died as a direct result of the drought; and that the economic loss to petitioners was $ 2,000. We think that the withering and desiccation of the plants which took place in the three to four month period was not a progressive or gradual deterioration. The death of the plants was relatively rapid, i.e., sudden. See
*498
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as amended and in effect during the year at issue, unless otherwise indicated.↩
2. But see
, where the Commissioner apparently conceded that the death of the taxpayer's plant and shrubs as a result of a drought and a freeze was a casualty under section 165(c)(3); he argued unsuccessfully only that the taxpayer failed to prove the loss actually occurred in the year claimed.Cox v. Commissioner , T.C. Memo. 1965-5↩3. See e.g.,
Elliott v. United States , 67-1 USTC par. 9232,19 AFTR 2d 665 (E.D. Mo. 1966) ; .Charno v. Commissioner , T.C. Memo. 1971-22↩4. Although not cited by either party, we note that
Rev. Rul. 77-490, 2 C.B. 64">1977-2 C.B. 64 , announced that California suffered a drought on or after January 20, 1977, of sufficient severity to warrant disaster assistance by the Federal Government under the Disaster Relief Act of 1974,42 U.S.C. sec. 5121 et seq.↩