UNITED STATES TAX COURT

136 T.C. No.

11

UNITED STATES TAX COURT

CHRISTINA^ A . ALPHONSO, Petitioner v .

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No.

17130-08.

Filed March 16,

2011.

P owned stock in CV, a cooperative housing corporation as defined in sec. 216(b), I.R.C., and leased

from CV pursuant to a so-called proprietary lease an

apartment in a'building that CV owned. A retaining

wall that CV owned collapsed, thereby causing certain

damage.

CV levied an assessment against each of its

stockholder-tenants, including P, with respect to the

damage caused by the collapse'of the retaining wall. * P

paid to CV the assessment (retaining wall assessment)

that CV levied against het.

P filed a Federal income tax return for her taxable year 2005 in which she claimed a casualty loss in

an amount that was equal to the retaining wall assessment and a deduction in a reduced amount as required by

the Internal Revenue Code with respect to that claimed

casualty loss. R disallowed the claimed casualty loss

and the claimed deduction with respect to that claimed

loss.

SERVED MAR 162011

- 2 -

It is P's position that she is entitled to a

deduction under sec. 165(a) and (c) (3), I.R.C., or in

the alternat ive under sec . 216 (a) , I . R . C . , with respec t

to the retaining wall assessment .

Held:

P is not entitled to a deduction under sec.

165(a) and (c) (3), I.R.C., or sec. 216(a), I.R.C., with

respect to the retaining wall assessment .

Harvey R. Poe, for petitioner.

Daniel P. Ryan, for respondent.

OPINION

CliIECHI, Judge:

This case is before us on. respondent's

motion for sumniary judgment (respondent's motion) .

We shall

grant respondent ' s mot ion .

Background

The record establishes and/or the parties do not dispute the

following.

At the time she liled the petition in this case, pétitioner

resided in New York.

During 2005, the year at issue,l petitioner owned shares of

stock in Castle Village Owners 'Corp.

(Castle Village) , a coopera-

tive housing corporation as defined in section 216 (b) .

Castle

Unless otherwise indicated, the factual background pertains

to 2005, the year at issue'.

e

2Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year at issue. All

(cont inued . . . )

Village owned a tract of land .that overlooks the Henry Hudson

Parkway. and Riverside Drive in New York, New York:

At a time not

disclosed bytthe record- before the year at issue; Castle Village

constructed on that land, inter alia, 5 multistory buildings in

which there are a "total sof 589 apartments." (We shall refer

collectively to the tract of land that Castle Village ownéd and

the buildings and other improvements that it constructed on that

land as the Castle Village complex. )

As a stockholder of .Castle Village

petitioner had the right

to enter into a so-called proprietary lease (proprietary lease)

with Castle Village with respect to the apartment inathe Castle

Village complex to which Caátle Village had allocated the shares

of stockein Castle Village that she owned.e-On a date riot disclosed by the record before the year at issue, petitionerrand

Castle Village executed-such a proprietary lease with respect to

that apartment.3

Petitioner lived in-the apartment to which

Castle Village had allocated her shares of stock in Castle

Village and with respect to which she had executed'the proprietary lease.

2

( . . . cont inued)

Rule references are to the Tax Cóurt Rules of Practice and ~

Procedure .

3The record does not contain t-he proprietary lease thât

petitioner and Castle Village executed. Howe¯ver, the record does

contain a mòdel proprietary lease (niodél proprietary lease) that

the parties do~noti dispute is materially idéntical to t he proprietary lease that petitioner and Castle*Village" executed.

- 4 -

The model proprietary lease provided in pertinent part:

WHEREAS, the Lessor [Castle Village] is the owner

of the land and the buildings erected thereon at 110200 Cabrini Boulevard, New.York, New York, hereinafter

called the buildings.

WHEREAS, the Lessee [the stockholder of Castle

Village] is the owner of

shares of the Lessor; to

which this lease is appurtenant and which have been

allocated to apartment

in the building;

Cabrini Boulevard, New York, New York;

DEMISED PREMISES AND TERM

NOW, THEREFORE, in consideration of the premises,

the Lessor hereby,·leases to the Lessee,- and the Lessee

hires from the Lessor, subject to the terms and conditions hereof, Apartment ___ in the building at Cabrini Boulevard, New York, New York (hereinafter

referred to as the "apartment) for a term from

, 19__, until December 31, 2036 (unless sooner

terminated as hereinafter provided). As used herein,

"the apartment" means the rooms in the buildings as

partitioned on the date of the execution of this lease

designated by the above-stated apartment number, together.with their appurtenances and fixtures and any

closets, terraces, balconies, roof, or portion thereof

outside of said partitioned.rooms, which are allocated

exclusively to the occupant of the apartment.

Rent (Maintenance) How Fixed

1. (a)

The rent (sometimes called maintenance)

payable by the Lessee for each year, or portion of ayear, during the term shall equal that proportion of

the Lessor's cash requirements for such year, or portion of a year, which the number of shares of Lessor

allocated to the apartment bears to the total number of

shares of the Lessor issued and outstanding on the date

of the determination of such cash requirements. - Such

maintenance shall be payable in edual monthly installments in advance on the first day of each month, unless

the Board of Directors of the Lessor (hereinafter

ealled'Directors) at the time of its determination of

the cash requirements shall otherwise direct. 'The

Lessee shall'also pay such additional rent ad may be

provided for herein when dùe.

- 5 -

*

*

*

*

*

Cash Requirements Defined

(c)

Whenever used herein the term "cash requirements" shall mean the estimated amount in cash which

the Directors shall from time to time in their judgment

determine to be necessary:or .proper for (1) the operation, maintenance, care, alteration and improvement of

the corporate property during the year or sportion of

the year for which such determination istmade; (2). the

creation of such réserve for .contingencies as they may

deem proper; and (3) the payment of any obligations,

liabilities or: expenses incurred or'to be incurred,

after giving consideration to.(i) income expected to be

received during such period (other than rent from

proprietary lessees) , and (i-i) cash on hand which the

Directors'in their discretion may choose to apply. The

Directors may from time to .time modify their prior determination and increase or diminish the amount

previously determined as cash requirements of the

corporation for a year or portion thereof. No determination of cash requirements shall have any retroactive

effect on the amount of the rent payable by the Lessee

for any period prior to the date of such determination.

All determinations of cash requirements shall be conclusive as to all lessees.

- - - .

s:

*

*

i

*

*

*

*

*

Lessor' s Repairs 2. The -Lessor shall at its expense keep in good

repair all of the buildings including all-of the apartments, the sidewalks and courts surrounding the same,

and its equipment and apparatus except those portions

the maintenance and repair of which are expressly

stated to be the responsibility of the Lessee pursuant

to Paragraph 18 hereof . £43

'Par. 18 (a)_ of the proprietary lease provided that the

lessee is responsible for repairs and maintenance to the interior

of the apartment that is the subject of the lease, including

maintenance, repair, and replacentent of plumbing, gas and heating

fixtures, appliances (e.g., refrigerators, air conditioners,

ranges), lighting and electrical fixtures, fuse boxes and circuit

(continued. . . )

- 6 -

*

*

*

*

*

*

*

Penthouses, Terraces and Balconies

7.

If the apartment includes a terrace, balcony,

or a -portion of the roof adjoining a penthouse, the

Lessee "shall have and enjoy the exclusive use-of the

terrace .or balcony or that portion of the roof appurtenant to the penthouse, subject to-the applicable provisions of this lease and to-the use of the terrace,

balcony or roof by the Lessor to the extent herein

permitted. The Lessee's use'thereof shall be subject

to such regulations as may, from time to time, be

prescribed by the Directors .

* * -* No planting,

fences, structures or lattices -shall be erected or

installed on the terraces, balconies, or roofs of the

buildings without -the prior written approval of the

Lessor. i No cooking shall be permitted on any terraces,

balconies or the roofs of the buildings,. nor shall the

walls thereof be painted by the Lessee without.the

prior written approval of the Lessor.

* * *

*

*

*

*

*

*

House Rules

13. The Lessor has adopted House Rules which are

appended hereto, and the Directors may alter, amend or

repeal such House Rules and adopt new House Rules.

This lease shall be subject to such House Rules which,

when a copy thereof has been furnished to the Lessee,

shall be taken to be part hereof. The Lessee hereby

covenants to comply with 'all such House Rules and see

that they are faithfully observed by the family,

guests, employees and subtenants of the Lessee. Breach

of a House ·Rule shall be a default under this lease.

The Lessor shall not be responsible to the Lessee for

the nonobservance or violation of House Rules by any other Lessee or person.

As provided in paragraph 13 of the model proprietary lease

(quoted above) , that lease was su

ect to so-called house rules

'(. . . continued)

breakers, and electrical wiring running into and .through the

apartment.

(Castle Village board house rules) that 'the board of directors of

Castle Village (Castle Village board) had.approved.

Those house

rules provided in pertinent part:

GARDEN AND PLAY AREA -

The grounds of Castle Village include beautifully

landscaped gardens and a children's playground.

Use of these areas is limited to building residents and their guests.

Pets are not permitted.

Residents are reminded to inform their guests and

caretakers of the rules since everyone is expected

to follow them.

Security guards have been instructed to escort

nonresidents off the property if they are not in

the company of a.resident. If'a security guard

does not recognize you as a Castle Village resident, you may be asked to -show identification.

Cooperate with him by doing so and telling him

your name and apartment number.

Usage areas in the garden:

-:8 --

Use sof designated- areas,

. A1 Safe Play.....Wading pool, sandbox, climbing

A2

. . . . . . . . . . . . .2. Activity has e not been permanently

established (see seasonally published Garden Rulesisi) .

A3 . . . . . . . . . . . . . .Activity has not been permanently

established - (see seasonally published Garden Rules) .

A4 . . . . . . . . . . . . . .Activity has not been permanently

established (see seasonally published Garden Rules) .

B2

. . . . . . . . . 2. . . ; Activity has not been permanently

established (see seasorially yublished Garden Rules) .

B1 Qúiet Area. . . . Sitting, reading picnics

C ~ Quiet Area. . . . Sitting, reading

Pit Active Play . . . Basketbali handbali (10 a.m. to

dusk) (i hour litnit on use when others are waitinc )

All other grass areas may not be useki. Please use the

footpaths at all times

The following az'e not permitted in the garden

Audible radio or cassette players

Bicycles without training wheels

Pets,

Barbecues or any open fire

Picking or cutting any part of the landscape

Bats, sticks, racquets or hardballs

Water balloons

•

.Smoking in any "A" Area

•

Making noise after dusk

•

Urinating

•

Climbing trees •.

Large water guns

Tri/bicycle, scooter and roller blade rules

.

Tricycles, bicycles with training wheels, roller

blades/skates and scooters are permitted only on the

pathway around Areas. -A2 and A3 . .

Sandbox and wading pool rules (Area A1)

•

Keep sand in'the' sandbox. Do not dump sand into

the wading , pool . e

•

Drain pool periodically throughout the day to

ensure the circulation of clean water.

•

Unplug the drain each evening.

sThe record does not contain the so-called Garden Rules to

which the Castle Village board house rules referred.

- 9 •

•

Children who are not toilet trained must wear

diapers or pull-ups at all times.

Follow posted wading pool and sandbox guidealines.

Trash and garbage

Trash barrels are located throughout the garden for

disposal of garbage and cigarette butts. Soiled diapers, used bandages, et cetera must be placed in sealed

plastic bags before disposal. Large quantities of

garbage resulting from picnics and parties should be

taken to the garbage room in your building.

Garden plots

Vegetable garden plots are located behind Area A1.

These plots are reserved for and tended by residents.

This is NOT a communal garden. Please DO NOT pick from

them. A subcommittee of the Garden Committee organizes

this. Please contact them if you would like to use a

plot. There is also an herb garden from which all

residents are invited to pick sprigs for cooking.

It

is located in the circle on'the path between Buildings

120 and 140.

Garden gatherings

Garden parties of 25 or fewer persons are permitted in

Areas A2 and A3. Advance permission is required from

the Management Office. A $25 deposit (fee subject to

change) is required to hold a date.

The deposit will

be refunded if the garden area is left clean and undamaged. Contact the Management Office to arrange a date

and time for your event.

If you wish to use the

Playspace as a bad weather backup, separate arrangement

must be made with the Playspace coordinators. The

garden is not available for large parties or catered

affairs. Tents may not be set up in the garden.

ADULTS ARE RESPONSIBLE FOR SUPERVISING THEIR CHILDREN

IN THE GARDEN.

ALL RESIDENTS, THEIR EMPLOYEES AND THEIR FRIENDS ARE

EXPECTED TO ADHERE TO THE GARDEN RULES.

NON-RESIDENT CAREGIVERS/BABYSITTERS MAY ONLY USE THE

GARDEN WHEN CARRYING OUT THEIR DUTIES.

UNACCOMPANIED GUESTS STAYING IN THE COMPLEX MUST HAVE

A PASS FROM THE MANAGEMENT OFFICE .

REASONABLE NUMBERS OF ,GUESTS, FOR PLAY DATES AND

PICNICS ARE PERMITTED.

- 10 -

Please exercise courtesy and common sense when

using the garden and respect the space of others.

The Castle Village complex included a retaining wall (Castle

Village retaining wall) that Castle Village owned.

That retain-

ing wall, which was approximately 70 feet high and approximately

250 feet wide, separated the Castle Village complex from certain

public roads approximately 65 feet below that complex.

On May 12, 2005, the Castle Village retaining wall col-

lapsed, causing rocks and soil to fall onto the public roads

below the Castle Village complex.

The collapse of that retaining

wall caused significant damage.

Castle Village levied an assessment against each of its

stockholders, including petitioner, with respect to the damage

caused by the collapse of the Castle Village retaining wall.

The

assessment that Castle Village levied against petitioner was

$26,390 (Castle Village assessment), which she paid.

Petitioner filed timely Form 1040, U.S. Individual Income

Tax Return, for her taxable year 2005 (2005 return).

In that

return, petitioner claimed (1) a casualty loss of $26,390

(claimed 2005 casualty loss), which was the amount of the Castle

Village assessment that petitioner had paid to Castle.Village in

2005, and (2) a casualty loss deduction of $23,188 (claimed 2005

casualty loss deduction).'

Petitioner attached to the 2005 return Form 4684, Casual(continued...)

- 11 -

Respondent issued to petitioner a notice of deficiency

(notice) with respect to her taxable year 2005.

In that notice,

respondent, inter alia, disallowed the claimed 2005 casualty loss

deduction.?

'

That was because respondent determined that "The

cause of the collapse of the Castle Village Retainer Wall was

* * * the result of a:gradual weakening of the wall" and that

therefore the loss from that collapse does not constitute a

casualty loss under section 165(c) (3).

Respondent filed an amendment to answer in this case in

which respondent alleged the- following additional reason for

respondent's disallowance of the claimed 2005 casualty loss

deduction:

"Because the collapse [of the Castle Village retain-

ing wall] occurred on Castle Village property, any casualty loss

deduction must be claimed by the corporation [Castle Village],

and not by the stockholders."

(...continued)

ties and Thefts.

In that form, petitioner reduced the amount of

the claimed 2005 casualty loss as required by sec. 165(h) (1) and

(2) in order to arrive at the amount of the claimed 2005 casualty

loss deduction.

'Except for certain correlative adjustments, the only other

determination that respondent made in the notice was to disallow

certain employee business expenses of $5,266 that petitioner

claimed in the 2005 return

In the petition, petitioner did not

allege that that determination is erroneous. Therefore,

petitioner is deemed to have conceded respondent's determination

to disallow the employee business expenses claimed in the 2005

return.. See Rule 34(b) (4); Funk v. Commissioner,.123 T.C. 213,

215

(2004); Swain v. Commissioner, 118 T.C. 358, 363

(2002).

- 12 -

Discussion

We must decide whether petitioner is entitled to a casualty

loss deduction with respect to the.Castle Village assessment that

petitioner paid to Castle Village.

It is petitioner's position that she is entitled to a

deduction under section 165(a) and (c) (3) or section 216(a) with

respect to the claimed 2005 casualty loss.

Respondent disagrees.

We consider first section 165(a) and (c) (3).

Before turning

to the parties' respective arguments with respect to that section, we shall set forth certain general principles applicable to

our analysis thereunder.

As pertinent here, section 165(a) and (c) (3) allows an

individual taxpayer to deduct "losses of property not connected

with a trade or business or a transaction entered into for

profit, if such losses arise from fire, storm, shipwreck, or

other casualty".

Generally, only the owner of the property

damaged by a casualty is entitled to a deduction for a casualty

loss sustained to that property.

730 F.2d 375

(5th Cir.

See Dosher v. United-States,

1984); Draper v. Commissioner,

15 T.C.

135

"Respondent does not concede, but assumes solely for purposes of respondent's motion, that the loss from the collapse of

the Castle Village retaining wall constitutes a casualty loss

under sec. 165(c) (3). Respondent indicates in respondent's

motion that if we were to deny respondent's motion, it would be

respondent's position that the loss from the collapse of the

Castle Village retaining wall does not constitute a casualty loss

under sec. 165(c) (3).

- 13 -

(1950).

Where a taxpayer has a leasehold interest in property

that is damaged by-a--casualty, the taxpayer is entitled to deduct

a casualty loss sustained to that leasehold interest.

Towers v.

Commissioner, 24 T.C. 199, 239 (1955), affd. on this issue sub

nom. Bonney v.

Commissioner,

247 F.2d 237

(2d Cir.

1957).

We turn now to the parties'-respective arguments under

section 165(a) and (c) (3).

In support of respondent's position

that petitioner is not entitled to a deduction under section

165(a) and (c) (3) with respect to the claimed 2005 casualty loss,

respondent relies -principally on West v. United States, 163 F.

Supp.

739

(E.D. Pa.' 1958), affd. 259 F.2d 704

(3d Cir. 1958).9

In West, the taxpayer was a member of an incorporated social

club (corporation)' that owned a large tract of land on which the

corporation constructed a dam for the purpose of creating an

artificial lake.

Id. at 740.

The taxpayer, like all the members

of the corporation, leased from -that corporation under a 99-year

lease a.lot on which the taxpayer built a cottage.

Id. at 741.

Only members of the corporation were entitled to lease lots, and

only persons who entered into leases with the corporation were

entitled to be members of the corporation.

Id.

The lease that

9Respondent also relies on Orr v..Commissioner, T.C. Memo.

1960-147, and Hine v. Tomlinson, 11 AFTR 2d 315, 63-1 USTC par.

9142 (M.D. Fla. -1962)-, revd. on other grounds 329 F.2d 462 (5th

Cir. 1964), in support of respondent's position that petitioner

is not entitled to a deduction under sec. 165(a) and (c) (3) with

respect to the claimed 2005 casualty loss.

- 14 -

the taxpayer executed with the corporation gave the taxpayer only

the right to use the lot.

Id.

The taxpayer's membership in the

corporation gave her (as well as the other members of that

corporation) the right to use the property of the corporation,

including the artificial lake.

Id.

In 1955, a hurricane de-

stroyed the dam, thereby causing the artificial lake to drain.

Id. at 740.

The corporation levied an assessment of $4,500

against each member of the corporation in order to pay for

rebuilding the dam and restoring the lake.3°

Id.

The taxpayer claimed a deduction under section 165(a) ands

(c) (3) for the $4,500 assessment that she paid to.the corporation, which the Commissioner disallowed.

Id.

The U.S. District Court for the Eastern District of Pennsyl-

vania ,(District Court) held that the taxpayer was not entitled to

sa deduction under section 165(a) and (c) (3) for the assessment

that she had paid to the corporation."

Id. at 741.

In so

°The respective taxpayers in Orr v. Commissioner, supra,

and Hine v. Tomlinson,

11 AFTR 2d at 317,

63-1 USTC par.

9142, at

87,224-87,225, were members of the same corporation of which the

taxpayer in West was a member and also claimed respective deductions under sec. 165(a) and (c) (3) for the respective amounts

that they had paid to that corporation to repair the dam and

restore the artificial lake that the hurricane had destroyed in

1955.

In each of those cases, the Commissioner of Internal

Revenue (Commissioner) disallowed the respective deductions that

the taxpayers claimed.

"In Orr v. Commissioner, supra, we also held that the

taxpayers were not entitled to a deduction under sec. 165(a) and

(c) (3) for the assessment that they had paid to the corporation.

(.continued...)

- 15 -

holding, - the -District ' Court concluded:

a

Plaintif f clearly- has a property interest in her

leasehold and in the cottage built on it·. She has no

property .interest, however, in the dam orvlake. Her '

right to use corporate property comes solely and entirely from her-membership. This right is conferred by

the corporate charter and by-laws. Her claim to a

casualty ~loss deduction would have more force if her a

rights in the lake were granted by the lease. In that

case her property interest in the,leasehold might well

be considered to extend to an easement in the lake.

West v. United States, supra at 741.

Respondent asserts that the facts in this case are analogous

to the facts in West and that under West petitioner is not

entitled to a deduction under section ]:65 (a) and (c) (3) with

respect to the claimed 2005 casualty-loss.

Petitioner counters that Keith v. Commissioner, 52 T.C. 41

(1969) , is "more recent and more relevant" than West with respect

to -the issue preserited here.

" (. . . continued)

In that case, we stated:

"The opinions in the West case addresded themselvêà to the verÿ issue that petitioner presents

here and appeared to take into account the same considerations

that are pressed upon us in the instant case. We thi~nk that the

same result is called for here."

In Hine v. Tomlinson, 11 AFTR 2d at 318, 63-1 USTC par.

9142, at 87,225, the U.S. District Êourt for' the MÅddle District

of Florida also, held that the taxpayer was not entitled to a

deduction un'der'sec. 165(a)~ arid (c) (3) for the adsessment that ^

she had paid to the corporation. , In that case, that court

stated:

"West and Orr were also cases based upon damages claimed

to have resulted from the destruction of dam and lake at Pocono

Lake~ Preserve .~ This Court approves and adopts the reasoning of

Grim, J., in West as being sound and directly applicable to the

present case." Id.

- T6 -In Keith, a corporation owned a certain tract ofuland in

Alabama on awhich it constructed a dam fore the-purposé 'of enlarging a lake that ë¯xisted*on the landic Id. at 41-42.

Thereafter,

the corporation recorded a restricti e covenant on that tract of

land and subdivided thestract into severalilots.

Id.: at -42-43.

The córporation then transferred by deed those lots-tto the

respective stockholders of the corporation.

Id. at 43.

In

Keith, we described the property to which those deeds pertained

as f ollows :

f:

The deeds covered the entire lakebed as well as the

adjoining land. ( .None of these deeds, or anyi other

deeds involved in this case, indicate the portion, if

any, of the property described therein, that was covered

by Green Valley Lake, beyond referring to the restric.tive scovenant .

The taxpayer husband in Keith purchased twoolots from the

respective original owners of those lots, who transferred those

lots to the taxpayer husband by deed.

transÌerred unde

Id.

A portion of the land

thî deed perta ning to eac1

waters of the lake."

Zo

was "Yinder the

Shortly after the ta payer -husband in

Keith purchased the two lots, a flood destroyed the'dam, thereby

causing 9the lalie to drain cömpletely .

decicied to rebuild the dam.

'Id.

atN3-44

the cos't òf that, rebuilding by, leOŸing

stockholders of the corporation irl

The corporat iori

The cožporation ]Said

n assessment against the

mounts that were proportion-

- 17 -

ate to.their respective stock interests in the corporation..

Keith v. Commissioner, supra at 44.

|

The taxpayer husband and the taxpayer wife filed a joint

return on which they claimed a deduction under section- 165(a) and

(c) (3) fora the assessment- that the taxpayer husband- had paid to

the corporation.

deduction.

Id.

The Commissioner disallowed that claimed

Id.

We held in Keith that the taxpayers were'entitled to deduct

under section 165(a) and (c) (3) the assessment that the taxpayer

husband paid to-the corporation.

.Id'. at 48.

In so holding, we

distinguished the facts in Keith from the facts in West v. United

States,

163 -F. Supp.4739

(E.D. Pa.,1958).

In doing so, we

stated:

Here petitioner's [taxpayer5husband's] rights in the

Lake did not stem from his ownership of stock in GVI

[the corporation];' indeed neither the certificate of

incorporation nor the bylaws of GVI even purport to

confer any such rights.. * *t* Petitioner's rights in

the lake stemmed primarily from his ownership in fee

(not merely a lease), subject to the restrictive covenant, of a portion of the lakebed and the land adjoining-the lake. , While the restrictive covenant limited

his rights in the lake in certain respects, it also

conferred certain rights on him with respect to the use

of the lake as well as the adjoining property, e.g.,

the right to go across the property of the other lot

owners for recreational purposes.

Disregarding for the moment the restrictive covenant, we think it apparent that petitioner, by virtue

of his warranty deeds to a part of the lakebed and to

- 18- -

the adjoining land, possessed valuable property rights

in the lake which were destroyed by the flood. * * *

[Fn. ref. omitted.]

Keith v. Commissioner, supra at 46.

,

4

According to petitioner, Keith addresses

athe specific situation-contemplated in West, whether a

shareholder was entitled to a casualty loss deduction

when his right to the damaged property, also-a lake in

this instance, was conferred by lease, thus giving

petitioner an easement to use the lake. * * * The Courtconcluded * * * that the petitioner possessed valuable

property rights in the lake which were destroyed by the

flood, likening the petitioner's rights to an equitable

, easement for the benefit of the shareholders rather

than for the benefit of the corporation, thus allowing

petitioner to take accasualty loss-deduction. *' *.*

Petitioner asserts that the facts" in the instant case are

analogous to the facts in Keith and.that Keith is controlling

here.

According to petitioner, she had "property rights in the

use of the apartment and related grounds" under the model proprietary lease,

"combined with the [Castle Village board] house

rules and memoranda of the [Castle Village] Board of Directors,

as well as the corporate Charter and By-Laws".

Petitioner claims

that the Castle Village board house rules "gave Petitioner the

reasonable use of the common areas and grounds" and that she

"must be considered to have possessed valuable property rights,

something akin to an equitable easement * * * in the Castle

- 19 -

Village property which was destroyed by the coÍlapse of the

[Castle Village] retaining wall."

I

We reject not only petitioner's assertions regarding Keith

v. Commissioner, 252.T.C. 41 (1969), but·also her assertions

regarding her alleged property interest in the common areas and

"In support of petitioner's claims,- petifioner advances the

following assertions:

While title to the Castle Village grounds and buildings

rest [sic] with the cooperative corporation [Castle

Village], the unit owners, by virtue of their Proprietary ,Leases to the apartments, combined,with the house

rules and memoranda of the Board of Directors, as well

asythe corporate Charter, and By-Laws,- had property

rights in the use of the apartment and related grounds,

so that their loss was the damage. to the grounds which

directly affected the apartments and the inability to

use the related ,grounds, as well as the damage thereto.

In Keith, the Board of Directors granted the deed

to the lots to the owners (who were shareholders), and

also the Board approved and issued the restrictive

covenants which gave and stated the reasonable use of

the lake for the lot owners.

Id. at 42-43.

In the

case at hand, Petitioner acquired her Proprietary Lease

(and stock) which, in effect, gave Petitioner title to

her apartment and included the Board approved House

Rules, which also gave Petitioner the reasonable use of

the common areas and grounds. Even the Corporate

Charter and By-Laws make it plain that the Corporation's purpose is to provide apartment cooperative

ownership for the residents, and this clearly reasonably included residential use of the common areas and

grounds (as provided in the By-Law provision with

respect to House Rules). Thus, by the ¿Court's rationale in Keith, Petitioner must be considered to have

possessed valuable property rights, something akin to

an equitable easement for the benefit of the shareholders rather than fòr the benefit of the corporation, in

the Castle Village property which was destroyed by the

collapse-of the retaining wall, and Petitioner must be

allowed to take a casualty loss deduction.

- 20 -

the common grounds of the Castle Village, complex (Castle Village

grounds) that she claims entitles her to sa casualty loss deduc-

tion.

With respect to petitioner' s assertions regarding Keith,

petitioner is wrong in asserting that Keith addresses whether a

stockholder is entitled to a casualty loss deduction where the

stockholder possesses rights to the damaged property under a

lease.

The rationale for our holding in Keith was our finding

that the taxpayer husband,

"by virtue of his warranty deeds to a

part of the lakebed and to the adjoining land, possessed valuable

property rights in the lake which were destroyed by the flood.""

Id. at 46.

We expressly stated in Keith that the taxpayer

husband's rights in the drained lake "stemmed primarily from his

"We found in Keith v. Commissioner, 52 T.C. 41, 46 (1969),

that under -the applicable law of Alabama "The owners of the land

underlying an artificial lake. and the land bordering upon such

lake have property rights in the water by virtue of their ownership of the land. ,These rights include the right to make reasonable use of the lake t. "

- 21 -

ownership in.fee (not merel-y a lease) * * * of a portion of the

lakebed and the land adjoining the lake.""

Id.

(fn. ref. omit-

ted)

With respect to petitioner's assertions regarding her

alleged property interest in the • Castle Village grounds, petitioner is wrong in asserting that she -possesses a property

interest in those grounds that entitles her to a casualty loss

deduction for damage to those grounds.

We have carefully consid-

ered the model proprietary lease, the Castle Village board house

rules, the corporate charter of Castle Village, and the bylaws of

Castle Village on which petitioner relies in support of her

assertion that she has such a property interest in the Castle

Village grounds.15

We find nothing in those documents that

allows us to conclude that petitioner possessed a leasehold

interest, an easement, or any other property interest in the

Castle Village grounds that entitles her to a deduction under

section 165(a) and (c) (3) for damage to those grounds.

"Petitioner also is wrong in asserting that in Keith we

were "likening the petitioner's rights to an equitable easement

for the benefit of the shareholders rather than the benefit of

the corporation" .

In Keith v. Commissioner, supra at 47-48, we

found that the corporation, and not the taxpayer, possessed an

equitable easement over the lake for the benefit of the corporation's stockholders. As discussed above, we found in Keith that

the taxpayer husband possessed a property interest in the lake

because of certain deeds under which respective portions of the

lakebed were transferred to him. -Id. at 46.

isThe record does not contain the memoranda of the Castle

Village board on which petitioner also relies.

- 22 -

As for the model proprietary lease and the Castle Village

board house rules that were made part of that lease by paragraph

13 thereof, that lease provided that Castle Village leased to the

tenant "Apartment ___ in the building at

Cabrini Boulevard"

and that that apartment consisted of

the rooms in the buildings * * * designated by the

above-stated apartment number, together with their

appurtenances and fixtures and any closets, terraces,

balconies, roof, or portion thereof outside of said

partitioned rooms, which are allocated exclusively to

the occupant of the apartment.

The model proprietary lease did not provide that Castle Village

leased to petitioner any portion of the Castle Village grounds

and did not provide that Castle Village granted to her any other

property interest in those grounds.

Although petitioner, like

the other stockholders of Castle Village, had the right to use

the Castle Village grounds subject to the Castle Village board

house rules regarding the use of those grounds that were made

part of the model proprietary lease by paragraph 13 thereof, we

conclude that that lease and those rules did not grant to petitioner a leasehold interest, an easement, or any other property

interest in the Castle Village grounds that entitles her to a

deduction under section 165(a) and (c) (3) for damage to those

grounds.

As for the corporate charter and bylaws of Castle Village,

we find nothing in those documents that grants to petitioner, a

stockholder of Castle Village, any property interest in the

- 23 -

Castle Village grounds.

We conclude that the corporate charter

and bylaws of Castle Village do not grant to petitioner a leasehold interest, an easement, or any other property interest in the

Castle Village grounds that entitles her to a deduction under

section 165(a) and (c) (3) for damage to those grounds.

On the record presented to us for purposes of respondent's

motion, we conclude that the facts in the instant case are

analogous to the facts in West v

United States, 163 F. Supp. 739

(E.D. Pa. 1958), and are not analogous to the facts in Keith v.

Commissioner, 52 T.C. 41 (1969).

Accordingly, we conclude that

"the same result [as in West] is called for here."

Commissioner, T.C. Memo. 1960-147¯.

Orr v.

We hold that petitioner is

not entitled to a deduction under section 165(a) and' (c) (3) with

respect to the claimed 2005 casualty loss.

We consider now petitioner's alternative argument under

section 216(a)."

Section 216(a) provides in pertinent part:

SEC. 216(a). Allowance of Deduction --In the case

of a tenant-stockholder (as defined in subsection

(b) (2)), there shall be allowed as a deduction amounts

(not otherwise deductible) paid or accrued to a cooper- ative housing corporation within the taxable year, but

only to the extent that such amounts represent the

tenant-stockholder's proportionate share of--

"Sec. 216(c) on which petitioner does not rely provides

that the stock of a cooperative housing corporation owned by a

so-called tenant-stockholder of that corporation is to be treated

as property subject to the allowance for depreciation to the

extent that the proprietary lease or right of occupancy conferred

by reason of such stockholder's ownership of that stock is used

in a trade or business or for the production of income.

- 24 -

(1) the real estate taxes allowable as a

deduction to the corporation under section 164

which are paid or incurred by the corporation on

the houses or apartment building and on the land

on which such houses (or building) are situated,

or

(2) the interest allowable as a deduction to

the corporation under section 163 which is paid or

incurred by the corporation on its indebtedness

contracted-(A) in the acquisition, construction,

alteration, rehabilitation, or maintenance of

the houses or apartment building, or

()B) in the acquisition of the land on

which the houses (or apartment building) are

situated.

(For convenience we shall refer to a tenant-stockholder of a

cooperative housing corporation as a stockholder of a cooperative

housing corporation.)

Section 216(a) allows two exceptions to the general rule

that a stockholder of a corporation is not entitled to deduct the

corporation's expenses that the corporation paid or incurred.

See Evans v. Commissioner, 557 F.2d 1095,

1099-1100

(5th Cir.

1977), affg. in.part and revg. in part T.C. Memo. 1974-267.

Those exceptions are for (1) real estate taxes that the corporation pays or incurs on the property that it owns and (2) interest

that the corporation pays or incurs on debt that it.issued in

order to, inter alia, acquire or construct the land or buildings

that it owns.

- 25 Petitioner asserts that section 216(a) -should be interpreted

to permit not only the two deductions that that section expressly

allows, but also the casualty loss deduction that she claims

here.

According to petitioner:

The stated purpose of I-.R.C., § 216 and its predecessor,

I.R.C. § 23(z) is to give tenants-stockholders of

housing cooperatives -the same tax benefits as are

allowed to homeowners. Eckstein v. United States, 452

F.2d 1036, 1048 (Ct. Cl. 1971) citing S.Rep.No. 1631,

77th Cong. 2nd Sess. (1942-2 Cum.Bull. 504).

The

purpose of I.R.C. § 216 is not in dispute; the code

section was enacted to place tenant-shareholders on

equal footing with homeowners by allowing deductions

afor amounts paid to the acorporation for mortgage interest andsproperty taxes-to :"pass through" to the tenantshareholders . .* * *

*

*

*

*

*

*

*

Respondent would have this Court believe that any

deduction not specifically-included in'I.R.C. § 216 is

prima facie evidence of its disallowance. This is

clearly not the case as evidenced by allowable tenantshareholder deductions found elsewhere in the Code and

by- the decision in Keith allowing the shareholders a

casualty loss deduction.

* * * Congress recognized

that tenant-shareholders-required more benefits to be

treated equitably under the tax code, thus it enacted

.additional provisions such as I.R.C. §§ 163 and 121.

As the Supreme Court ofithe United States has held, "Where

Congress explicitly enumerates certain exceptions to a general

prohibition, additional exceptions are not to be implied, in the

absence -of evidence of a contir'aryel*egislative intent."

Glover Constr.

Co.,

446 U.S

608,

616-617 - (1980).

Andrus v.

Petitioner

does not cite any legislative history establishing that Congress

intended section 216(a) to permit the stockholders of a coopera-

- 26 -

Letive housing corporation to deduct any of such corporation's

expenses that it paid or incurred except for the two deductions

that Congress expressly allowed in that section.

Indeed, the

following legislative history of section 23(z) of the Internal

Revenue Code of 1939 (1939 Code), as amended by the Revenue Act

of 1942, ch. 619, sec. 128, 56 Stat. 826, a predecessor of

section 216, establishes that Congress did not have any such

intention:

The general purpose of this provision [section 23(z) of

the 1939 Code] is to place the tenant stockholders of a

cooperative apartment in the same position as the owner

of a dwelling house so far as deductions for interest

and taxes are concerned.

[Emphasis added.]

S. Rept.

1631,

77th Cong., 2d Sess.

(1942),

1942-2 C.B.

504,

546.

We conclude that Congress intended in section 216(a) to

allow the stockholders of a cooperative housing corporation

deductions solely for amounts attributable to such corporation's

real estate taxes and mortgage interest that it paid or incurred

with respect to property that it owns.

We hold that petitioner

is not entitled to a deduction under section 216(a) with respect

to the claimed 2005 casualty loss.

We have considered all-of the contentions and arguments of

the parties that are not discussed herein,- and we find them to be

without merit, irrelevant, and/or moot.

- 27 -

To reflect the foregoing,

An order granting respondent's motion and decision for

respondent will be entered.