## Facts

- Husband and wife filed joint federal income tax returns for 1955 and 1956.
- The Commissioner determined deficiencies for 1955 and 1956 and issued a notice of deficiency.
- After concessions by both sides on unrelated adjustments, the remaining disputes concerned:
  - A $100 deduction claimed in 1955 as a casualty loss for a vase allegedly broken by the taxpayers’ cat.
  - The basis and resulting gain/loss on 1955 sales of Interstate Baking Corporation stock and United Shoe Machinery Corporation stock; the taxpayers reported a $1,000 capital loss.
  - A 1956 capital-loss carryover claimed from 1955; the Commissioner determined no carryover existed.
- The Commissioner disallowed the vase deduction on the grounds that the event was not a deductible “other casualty” and, alternatively, that the taxpayers failed to substantiate the vase’s basis and its fair market value immediately before and after the breakage.
- The Commissioner recomputed stock bases (lower than those used by the taxpayers), producing a net taxable capital gain of $696 in 1955 rather than a loss.
- Because the Commissioner determined a 1955 net capital gain, the Commissioner disallowed any 1955 capital-loss carryover to 1956 and increased 1956 taxable income accordingly.

## Issues

1. Whether a vase broken by a household cat constitutes a deductible “other casualty” loss under I.R.C. § 165(c)(3) and, if so, whether the taxpayers substantiated the amount of the loss.
2. Whether the taxpayers proved stock bases sufficient to sustain their reported 1955 capital loss rather than the Commissioner’s determination of a 1955 net capital gain.
3. Whether the taxpayers were entitled to a 1956 capital-loss carryover from 1955.

## Decision

- The Tax Court sustained the Commissioner’s disallowance of the $100 casualty-loss deduction for the broken vase.
- The Tax Court sustained the Commissioner’s recomputation of stock bases and resulting determination of a net taxable capital gain of $696 for 1955.
- The Tax Court sustained the Commissioner’s determination that no capital-loss carryover was available for 1956 because 1955 did not produce a net capital loss.
- Deficiencies were upheld as recomputed after the parties’ concessions.

## Legal Principles

- Under I.R.C. § 165(c)(3), an “other casualty” is construed narrowly and generally requires a sudden, unexpected event comparable in character to fire, storm, or shipwreck; ordinary household breakage (including by a household pet) is not treated as a casualty.
- The taxpayer bears the burden of proving entitlement to deductions and of substantiating the amount of any claimed loss, including adjusted basis and relevant fair market values.
- The Commissioner’s determinations are presumed correct; absent sufficient proof of different bases or computations, the Tax Court will sustain the Commissioner’s capital gain/loss calculations.
- A capital-loss carryover depends on the existence of a net capital loss in the prior year; if the prior year reflects a net capital gain, no capital-loss carryover is allowed.

## Conclusion

The Tax Court held that the cat-related breakage did not produce a deductible casualty loss and was unsubstantiated in amount, upheld the Commissioner’s stock-basis determinations producing a 1955 net capital gain, and therefore denied any 1956 capital-loss carryover.


Dyer v. Commissioner, 20 T.C.M. (CCH) 705 (T.C. 1961)