## Facts

- Harvey and Florence Pulvers owned a residence and lot on a mountain in Los Angeles County, California.
- A landslide on the same mountain destroyed three nearby homes but caused no physical damage to the Pulvers’ property.
- Access to the Pulvers’ home was not substantially impaired.
- Following the landslide, the Pulvers’ property declined in value due to public fear that a similar slide might affect their property in the future.
- The Pulvers claimed an “other casualty” loss deduction under I.R.C. § 165(c)(3) for the decrease in fair market value.
- The Commissioner disallowed the deduction, and the Tax Court sustained the disallowance as a “hypothetical loss” or “mere fluctuation in value.”

## Issues

1. Whether a taxpayer may deduct an “other casualty” loss under I.R.C. § 165(c)(3) for a decline in a home’s value caused by fear of future landslides when the taxpayer’s property suffered no physical damage.
2. Whether a nearby landslide (even if associated with a storm) supports a § 165(c)(3) deduction when the taxpayer’s own property was not physically damaged.

## Decision

- The Ninth Circuit affirmed the Tax Court’s decision sustaining the Commissioner’s disallowance.
- The court held that § 165(c)(3) does not allow a casualty loss deduction for reduced market value based on fear or stigma when the taxpayer’s property suffers no physical damage or physical loss.
- The court rejected the argument that the event qualified as a “storm” loss because the Pulvers’ property was not damaged by any storm (or other casualty).

## Legal Principles

- “Other casualty” in I.R.C. § 165(c)(3) is construed in light of the listed events (fire, storm, shipwreck, theft) and generally requires physical damage to, or physical loss of, the taxpayer’s property.
- A reduction in fair market value attributable to market perceptions or fear of future harm, without present physical damage, is a non-deductible fluctuation in value rather than a casualty loss.
- Causation from an enumerated event (e.g., a storm) is insufficient absent damage to the taxpayer’s own property.

## Conclusion

A taxpayer cannot claim a § 165(c)(3) casualty loss deduction based solely on a post-event drop in property value caused by fear of future harm when the taxpayer’s property itself sustained no physical damage or physical loss.


Pulvers v. Commissioner, 407 F.2d 838 (9th Cir. 1969)