# UNITED STATES TAX COURT

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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.

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*

*

*

*

*

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A49faa484f7d2a2a5. Public record. Not legal advice.