Opinion
Docket Nos. 109749 109750.
1944-01-7
RAY DURDEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ROBERT L. STEPHENS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
H. C. Holbrook, Esq., for the petitioners. Charles P. Bagley, Esq., for the respondent.
Petitioners' residences were injured by an unusually violent blast in the course of operations by the county in a quarry about a half-mile distant. Insurance companies denied liability but compromised by paying comparatively small amounts, and the county compensated petitioners by making improvements on the premises. Held, that the losses were deductible as arising from casualty within the language of section 23(e)(3) of the Internal Revenue Code, to the extent of the difference between fair market value of the properties before and after the blast, reduced by the compensation received from insurance companies and the value of improvements made by the county. H. C. Holbrook, Esq., for the petitioners. Charles P. Bagley, Esq., for the respondent.
These proceedings, duly consolidated, involve income taxes for the calendar year 1939. The Commissioner determined a deficiency of $56.74 against Ray Durden, and of $807.47 against Robert L. Stephens. The income tax returns of both petitioners were filed with the collector for the district of Georgia, at Atlanta, Georgia. Error is urged in the disallowance by the Commissioner of deductions claimed under section 23(e)-3 of the Internal Revenue Code, that is, (1) whether the petitioners have sustained losses of property from a ‘casualty‘ within the meaning of section 23(e)-3, Internal Revenue Code; (2) the amount of such losses, if any; and (3) the extent to which the petitioners have been compensated for such losses.
We make the following findings of fact.
FINDINGS OF FACT.
Both petitioners are individuals who reside on Ashford Park Road, DeKalb County, Atlanta, Georgia, between one hundred and two hundred yards apart. They caused two houses of similar construction to be built. The houses were erected by the same builder and were completed about the end of November or the first of December 1938. The cost of Stephens' house was between $15,000 and $16,000 and Durden's house cost between $13,000 and $15,000. The petitioners each commenced occupancy of his house about December 7, 1938.
Each house was two stories high and had a basement. Reinforced concrete was used for foundations. The inner walls were of basic slag and were brick veneered, with one inch space between the veneer and the main wall up to the first floor joist. Steel strips were placed on top of the blocks and all floor joists were landed on those steel strips on top of the blocks. All brick joints were filled with mortar. Cross sections were steel beams and the basement was spanned with steel beams. The openings at the top of the block walls were filled with brick and mortar. Outside walls were 13 inches thick from the basement to the top of the second story. The walls were all waterproofed. The frame of each house was constructed with lumber which had been aged over a period of many years and was the best of material.
About one-half a mile from Stephens' house and about a half to three-quarters of a mile from Durden's house there was a quarry operated by the Works Progress Administration, under the supervision of DeKalb County. The quarry was engaged in day to day blasting operations during the period when these houses were being constructed, and thereafter. One blast during the period of construction shook the whole house. Stephens was advised on this occasion by W. H. Crosby, who was in charge of the construction, to get in touch with the management of the quarry to ask that the blasts be lightened. Crosby also notified Durden after this blast that unless the blasts were eliminated or lightened up considerably it would be useless to go on with the construction. Stephens complained to Paul Matthews, the county engineer, who assured him that there would be no more ‘heavy blasts.‘ A second blast ‘shook the house‘ on the week end prior to January 20, 1939, after the construction of the houses had been completed. Both Stephens and Durden complained to Matthews about it. Matthews stated that he would pass the information on to the Works Progress Administration. A careful search by Stephens revealed no apparent damage caused to his house by this blast. About January 20, 1939, another blast took place. This was a very unusual blast, heavier than a normal charge. Thereafter, the damage of which the petitioners complain herein became apparent.
The damage to the houses of both petitioners was similar. The foundations, and the walls in every room were cracked; the dormer windows leaked; the plastering was damaged; and there were leaks in the basement. The cracks were from about a sixteenth of an inch to an eighth of an inch in width. The walls of Stephens' garage were also cracked. Stephens' house was damaged slightly worse than Durden's. The damage to both has been only partially repaired. Some of the damage to the walls can not be repaired so as to restore them to their original condition.
The amount of the damage to Durden's house was $3,750; to Stephens' house and garage, $4,775. These figures represent the difference in market value of the houses immediately before and immediately after the blast.
At the time of the explosion Durden carried an insurance policy of $10,000, and he made a claim thereunder. The company questioned its liability and compromised by paying $600 for certain repairs.
At the time of the explosion Stephens carried an insurance policy of $10,000 on his house and an additional $1,500 on the garage. He made a claim under the policy. The company questioned its liability and compromised the claim by paying $750 for certain repairs.
Both Durden and Stephens made claim against DeKalb County, Georgia, which refused to admit liability. As a compromise, a driveway 850 feet long by 10 feet wide was built for Durden and a driveway 800 feet long by 10 feet wide was built for Stephens. The fair market value of each driveway is $650.
The damage was caused by the blast, or series of blasts, which occurred on or about January 20, 1939, and not by any prior blast or prior series of blasts. Said damage was not due to the drying out of the framing in the house or to any other form or process of gradual deterioration.
OPINION.
DISNEY, Judge:
The first question confronting us here is whether the taxpayers have sustained losses arising from a ‘casualty‘ within the meaning of section 23(e)(3) of the Internal Revenue Code.
Under the doctrine of ejusdem generis, it is necessary to define the word ‘casualty‘ in connection with the words ‘fires, storms, shipwreck‘ immediately preceding it. ‘Casualty‘ has been variously defined, including ‘an undesigned, sudden and unexpected event‘— Webster's New International Dictionary; also as ‘an event due to some sudden, unexpected or unusual cause‘— Matheson v. Commissioner, 54 Fed.(2d) 537. The term ‘casualty‘ ‘excludes the progressive deterioration of property through a steadily operating cause.‘ Fay v. Helvering, 120 Fed.(2d) 253; also, ‘an accident or casualty proceeds from an unknown cause or is an unusual effect of a known cause. Either may be said to occur by chance and unexpectedly.‘ Chicago, St. Louis & New Orleans Railroad Co. v. Pullman Southern Car Co., 139 U.S. 79. The blast causing the damage to the houses of petitioners was unusual, heavier than those occurring during the day by day blasting operations which had theretofore been carried on. The damage was not caused by any progressive deterioration of property. We conclude that it was caused by a casualty in the ordinary sense of the word. Whether under the application of the doctrine of ejusdem generis it was a casualty of the same general nature or kind, as ‘fires, storms, shipwreck,‘ offers a somewhat more difficult question. However, it has been held, under section 23(e)(3), that an automobile wreck may be a casualty in closest analogy to shipwreck. Shearer v. Anderson, 16 Fed.(2d) 995, and Regulations 103 section 19.23(e)-1, approves as a deductible item loss occasioned by damage to an automobile and resulting from the faulty driving of the taxpayer or another operating the automobile, or from the faulty driving of another automobile colliding with it. In Anderson v. Commissioner, 81 Fed.(2d) 457, it is held, under section 23(e)(3), that losses arising from ordinary highway mishaps may be deducted even though caused by the negligence of the taxpayer. Conversely, losses sustained through the action of termites have been held not to be deductible under the heading of casualty. United States v. Rogers, 120 Fed. (2d) 244; Charles J. Fay, 42 B.T.A. 206; affd., 120 Fed.(2d) 753. It thus appears that a proper definition of the term casualty does not exclude the intervention of human agency, such as involved in setting off the blast involved in this case, and the prime element is that of suddenness as opposed to some gradually increasing result. The blast being considered here, though set off by human agency, was sudden and unusual in violence. The fact that ordinary blasts had been occurring, without complaint from the petitioners, from day to day, the fact that such ordinary blasts caused no damage and that much damage was caused by this particular blast, resulting in complaint by the petitioners, all indicate that the occurrence was unusual in its results. It is suggested that the fact that the petitioners had knowledge of the blasting shows that they had assumed the risk. We can not agree. They had secured a promise, in effect, that no unusual blasting would be done, thereby in our opinion doing everything that they could reasonably be required to do.
SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:* * *(e) LOSSES BY INDIVIDUALS.— In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise—(3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft. * * *
The cases cited by the respondent do not appear to us to be in point. Matheson v. Commissioner, supra, involved the ordinary action of the elements upon a poorly constructed building, no time being established when any serious injury occurred, the result being that of progressive decay or corrosion. United States v. Rogers, supra, and Charles J. Fay, supra, involved damage done by termites over a period of time. Daniel F. Ebbert, 9 B.T.A. 1401, is a case where excavation caused other ground to cave in and the walls of the petitioner's residence to crack. No element of suddenness appears in the facts. We conclude and hold that the damage done to the residences of the petitioners falls within the intendment of ‘casualty‘ as used in section 23(e)(3) of the Internal Revenue Code. We have no doubt that Congress, when it amended the statute in 1916 by adding ‘or other casualty‘ to ‘fires, storms, shipwreck,‘ intended to cover injuries inflicted by a sudden and violent blast, although set off by human agency.
There remains for consideration the amount of damages incurred through the casualty and therefore the amount of allowable deduction. Petitioners seek to deduct amounts estimated to cover all necessary repairs and depreciation after repairs, but under the facts in this case this plainly involves duplication. The measure of damages is the difference between the value of the properties immediately preceding the casualty and the value immediately thereafter. Whipple v. United States, 25 Fed.(2d) 520; John S. Hall et al., Executors, 16 B.T.A. 71; Mary Cheney Davis, 16 B.T.A. 65. To arrive at the proper deduction, from such amounts, we must subtract the amount by which the petitioners were compensated * * * by insurance or otherwise‘— compensation from insurance and in the value of the driveway laid down for each petitioner. This was $1,250 in the case of Ray Durden and $1,400 in the case of Robert L. Stephens. These respective amounts are to be deducted from $3,750 in the case of Ray Durden, and $4,775 in the case of Robert L. Stephens, which amounts, from the evidence, we find to be the difference between fair market values before and after the blast.
We therefore conclude and hold that Ray Durden, petitioner in Docket No. 109749, is entitled to a net deduction of $2,500 and that Robert L. Stephens, petitioner in Docket No. 109750, is entitled to a net deduction of $3,375 for losses sustained during the taxable year 1939 by reason of a casualty within the meaning of section 23(e)(3) of the Internal Revenue Code.
Decision will be entered under Rule 50.