Petitioners reported profits from the sale of breeding cattle as a long-term capital gain under section 1231 of the Internal Revenue Code. In the same return, petitioners deducted from ordinary income, under section 165(c)(3), losses sustained from the destruction of their uninsured residential shrubbery. The Commissioner disallowed the casualty-loss deduction from ordinary income, ruling that the loss was subject to the netting provisions of section 1231 and that, since the sale profits exceeded the casualty losses, the loss was to be characterized as a capital loss to be offset against the capital gain. Contrary to previous federal court decisions, the Tax Court sustained the Commissioner's position, holding that uninsured casualty losses of capital assets held for more than six months and neither used in the taxpayer's trade or business nor held for the production of income are subject to section 1231.
Michigan Law Review,
Uninsured Casualty Losses Are Within the Scope of I.R.C. Section 1231--E. Taylor Chewning,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol64/iss4/11