Grant v. Commissioner , 30 B.T.A. 1028 ( 1934 )

HARRY JOHNSTON GRANT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Grant v. Commissioner

Docket No. 51794.

United States Board of Tax Appeals

30 B.T.A. 1028; 1934 BTA LEXIS 1233;

June 26, 1934, Promulgated

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1. Held, upon the evidence, that an extensive deep sinking of land caused by a subterranean disturbance is a casualty within the meaning of section 214(a)(6) of the Revenue Act of 1926.

2. The difference between the values of the property before and after the casualty constitutes the loss due to the casualty; the basis for the deduction of this loss is the cost of the property (sec. 204(a) and sec. 214(a)(6), Revenue Act of 1926) and, proportionately, this difference is to the whole of the value before the casualty as the amount of the deductible loss is to the whole of the cost.

3. Land and improvements which constitute residential property must be treated as a unit in determining the amount of loss caused by the casualty as described.

Edwin S. Mack, Esq., James B. Blake, Esq., and Leon F. Foley, Esq., for the petitioner.

W. Frank Gibbs, Esq., for the respondent.

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MCMAHON

This is a proceeding for the redetermination of an asserted deficiency in income tax for the calendar year 1927 in the amount of $16,129.08.

The petition alleges that the respondent erred in disallowing a deduction from gross income in the amount of $78,903.41 for alleged losses arising from casualty on petitioner's residential property.

FINDINGS OF FACT.

The petitioner is, and has been since December 1924, a resident of the village of Whitefish Bay, a residential suburb of Milwaukee, Wisconsin. In the fall of 1923 he purchased at a net cost of $26,810.48 a parcel of land in Whitefish Bay with a width of 135 feet on Lake Drive, extending eastward from Lake Drive to Lake Michigan, a distance of some 450 feet. This property had been a part of a well known pleasure resort, famous for its natural beauty. The first 200 feet of the property eastward from Lake Drive was approximately 100 feet above the level of Lake Michigan; the highest elevation was 107 feet. The remaining 250 feet eastward sloped gradually down to a retaining wall built by the petitioner at the west end of the beach of sand and pebbles. The width of the beach depends upon the season and the condition of the lake, but there is always a beach at least 20 feet in width. The bank or slope along the shore line was heavily wooded with large, beautiful trees and a dense growth of small trees and shrubbery. Many of the trees were fifty to sixty feet in height and from one and one half to two feet in diameter, and several of them were white oak trees over a hundred years old. At that time there was no evidence of any past or present movement or cleavage or sinking of any part of the land. The slope of the bank was such as would ordinarily be considered and assumed to be perfectly stable.

Shortly after the purchase of the real estate, the petitioner commenced the construction thereon of a residence which he intended to use as a permanent home for himself and family. The house was completed late in the fall of 1924 and the petitioner and his family moved into it in December 1924. In the latter part of March 1925 a fire occurred which destroyed the house to a large extent. The petitioner took immediate steps for its reconstruction. It was rebuilt at a cost of $5,090.13 in excess of the amount allowed by the insurance company. The total cost of constructing the house, including the sum of $5,090.13, was $102,092.93, making a total cost of $128,903.41 for both land and house. The petitioner and his family again occupied the house in the latter part of October 1926, and have since lived there continuously.

That part of the house nearest the east or lake side of the property was approximately thirty feet west from the point where the land began to slope toward the lake shore. In February 1927 the petitioner discovered a small crack, break, or depression across the entire width of his property, approximately eight feet from the easterly end of the house, running north and south parallel with the lake shore. The property east of the crack began to sink gradually, day by day, from one to two inches a day to some three, four, five, or six inches a day. The sinking was more rapid after rains or thaws. The condition was entirely different from the ordinary erosion of the bank along Lake Michigan which occurred for years to the north of Milwaukee in Whitefish Bay and northward through Fox Point, in that it was characterized by a sliding of the bank toward and into the lake. The ordinary erosion or sliding of the bank is a surface action which is obvious. There was no sudden collapse but a gradual vertical sinking of the entire land between the lake shore and a point eight feet east from the house, including the slope and about twenty-two feet of ground theretofore on a level with the ground immediately surrounding the house, so that more than the east half of petitioner's property was in movement. During the midsummer dry season the sinking seemed arrested at times. From 1927, when the sinking commenced, until the present time there has been a sinkage of about forty feet. The sinkage during the first year was about twenty-five to thirty feet. The largest white oak tree on the property, which was located prior to the sinkage just to the west of the top or edge of the original slope, gradually sank in an upright position below the level of the top of the slope so that its top branches were on the level with the lower floor of the house, and was later covered over in the process of arresting or stopping the sinking.

The drop was at first thought to be confined to the property of petitioner and to the contiguous property north of petitioner's property, but after a few days the break progressed several hundred feet to the north and south. Since then the movement has extended so that the land affected is over a half mile in length and over two hundred feet wide at its widest point. The sinking was most marked on the property immediately adjoining petitioner's property to the north, this property and the property of the petitioner being at the apex of the movement and the place where the break was first discovered.

Before the owner of the residence adjoining petitioner's property to the north built his residence, the property was examined by an engineer of high repute, who advised the architect as to the location of the proposed residence on the property. The break occurred within three feet east of this residence. The conditions there were more acute. As an emergency and temporary protection against the falling of the residence a row of jacks to form a buttress wall was placed in the break, which were kept tied night and day. This was done to prevent the ground west of the break upon which the house rested from sinking. After the ground east of the jacks had sunk about fifteen feet, the jacks were removed and a wall of reinforced concrete was built. This was done in August or September when the sinking had slowed up sufficiently to permit the removal of the jacks without danger to the house. The wall was built 12 feet below the grade of the ground at the house. This wall was held and supported by horizontal 2 1/2-inch steel rods which ran underneath the house and were anchored to large blocks of reinforced concrete cast in pits west of the house.

Before the house of the petitioner had been originally completed a concrete retaining wall was constructed at the foot of the bank on the beach. This wall was constructed about four feet above the surface and three or four feet down into the hardpan beneath the sand and gravel of the beach and along the entire width of the property, the ends thereof being turned in. At first no movement was apparent at the beach, but later when the movement was well under way the retaining wall was forced upward and about a foot outward in the center. For the past year or two the movement of the lower half of the bank has ceased and the movement is confined to that part between the break in the top and the fault, hereinafter described, running across the width of the bank.

The petitioner and contiguous property owners became alarmed after the discovery of the break and its continuing progress to the north and south of the place of its first appearance and engaged engineers with expert scientific and engineering knowledge in an effort to ascertain the cause and provide a remedy for the condition. Extensive surveys of the entire situation were made, including topographical and geological surveys. Examination of the soil structure was made by means of borings at various points.

There existed conditions (disclosed by these surveys) as follows: The land sloped away from the edge of the lake bluff downward toward the west, the upper portion or stratum of the land for a quarter of a mile westward to the right of way of the Chicago & Northwestern Railway Co. being "red glacial till." This red glacial till is a very dense red clay, practically impervious to the flow of water. Below this red clay was a sand stratum which came to the surface about a quarter of a mile west of the lake along this right of way. Below this sand stratum was a solid clay substratum which sloped downward to the east toward the lake. There were no storm sewers in Whitefish Bay. Consequently the rain water or surface water flowed over the impervious surface westward to the outcroppings of sand in the neighborhood of the right of way. A large area of the village beyond the right of way to the Milwaukee River was open water-bearing sand. There the water percolated through the sand and flowed underground eastward toward the lake, over the substratum of solid clay which was also impervious to water. The drainage on the surface was from the east away from the lake to the west and the underground drainage was from the west toward the lake to the east. Immediately above the substratum of solid clay where the sinking occurred along the lake shore was a stratum of what is called "sticky clay or quick sand and clay", while to the north and south harder material containing great boulders appeared. This sticky clay showed all through the neighborhood where the sinking occurred, with the bottom of such clay tipping toward the property of the petitioner and that of his neighbor to the north. This material is very plastic and is composed of extremely fine sand and clay. Water passes through it very slowly and will not drain out by gravity, but is held within it by capillary attraction. This material in the ground left undisturbed is very rigid. However, if disturbed by vibration, pressure, or friction it becomes a plastic, quickened mass and the water comes to the surface. Between the top edge of the bank and the lake shore there were two distinct masses of red clay, each occupying about half of the width of the bank. These two masses were moving more or less independently. The lower or underground contour of the lower mass was in the form of a semicircle, the center of which was approximately thirty-nine feet in depth, extending about nine feet below lake level. At times the upper mass, which was more uniform in depth throughout its length, being at most eight to ten feet deep, seemed to be sliding more rapidly than the lower mass. It showed a tendency to slide under the lower mass and force the lower mass upward, so that there was a fault plane between the two which caused a roll to form about the middle of the bank. The lower mass moved upward and eastward and the upper mass moved downward and eastward. These two masses of red clay were floating in the plastic sticky sand below. These two masses of red clay had been receiving support by adhesion to the red surface clay to the west, and when the break occurred, that support was removed. The break was a sudden, abrupt breaking away from the supporting mass.

The winter of 1924 was an open one, with excessive rainfall, very little snow, and not very much frost in the ground. No unusually terriffic storms occurred and no earthquakes were reported to have occurred.

No one condition can be assigned as a direct cause of the sinking, but it is due to a combination of circumstances, all contributing to a greater or less degree, such as the peculiar geological formation in that locality; the singular characteristics of the sticky sand and clay and its position between two kinds of impervious clay; the concentration of the water in the sand stratum; unusually high water or excessive rainfall and other climatic conditions; the action of the water of the lake; and the vibration caused by traffic on Lake Drive, the pavement of which was quite rough.

There was no dislocation of the beach until the movement was well under way, and such movement was confined to the beach area and a short distance out into the water. There was no pressure due to accumulated surface water. The sinking could not have been foreseen or predicted because it resulted from underground action or subterranean disturbance, being a very deep-seated underground movement when it occurred and not a giving away of the surface as such.

As determined by the engineers, an attempt to drain the water from the sticky sand and clay toward the east at the bank would be of no avail; the only possibility of solidifying this material was to cut off the entrance of the water from the west; and the most feasible remedy would be to place a large dip drain down at the westerly edge of the red glacial till, along the line where the sand stratum appears at the surface a quarter of a mile to the west of the petitioner's property. This plan was based upon the theory that the surface water carried from the east to the west and discharged into the sand would be picked up by these drains and concentration of the water downward and to the east into the sand would be prevented, thus relieving the underground pressure against the bluff or bank. However, this plan could not be carried out by the petitioner and other property owners affected as it involved property of others, involved great expense, and would have to be carried out as a municipal enterprise. The plan was suggested to the village authorities, but no definite action was taken thereon by such authorities.

In an attempt to arrest the sinking by draining the underground water, petitioner in about March 1927, pursuant to advice from engineers and others consulted with, caused the digging of about two hundred or more holes of a depth of from four to eight feet along the bank or slope. As these holes filled with water it was syphoned out. This method proved ineffective. Big sump holes or wells were then dug and power pumps were installed and used in an attempt to drain the water into the lake. When this proved of no avail on account of the great flow of water, petitioner was advised to put in permanent drains. Accordingly two main trenches two feet wide and nine feet deep, running down the bank directly eastward, were dug. Lateral trenches about fifteen to twenty feet apart across the entire bank were then dug, sloping into the main trenches, the general plan being in effect a herringbone design. These trenches were filled up to about three feet with trees three to four inches in diameter and twelve to twenty feet in length. The trees were covered with cinders about three feet deep, and the remaining space in the trenches was filled with dirt. Because of the almost constant movement of the two masses of red glacial till, hereinbefore described, this work had to be done over several times. The upper mass moved faster than the lower. Believing that he had followed competent advice and that the movement had finally been arrested, petitioner improved the bank with landscaping, walks, stone steps and other decorative effects, only to find that the movement continued. For the past year or two, the movement of the lower part of the bank apparently has been arrested. In preventing and arresting the sinking petitioner in the year 1927 expended $14,684.26. In 1928, 1929, and 1930 he expended about $15,000 for such purpose, or an average of $5,000 each year.

The fair market value of the house and lot in 1927 prior to the occurrence of the phenomenon heretofore described in these findings was $80,000 and $33,750, respectively, or a total value of $113,750. The fair market value of the house and lot in 1927 after the occurrence of the phenomenon heretofore described in these findings was $36,500 and $13,500, respectively, or a total of $50,000.

Petitioner's loss was caused by such phenomenon.

The petitioner carried no insurance covering damage caused by the sinking, and was not compensated in whole or in part by insurance or otherwise for the loss resulting from such sinking.

In the statement attached to the notice of deficiency the Commissioner stated in part as follows:

Your contention that you are entitled to a deduction of $78,903.41 for loss sustained from casualty on residential property on Lake Michigan for 1927 and $14,684.26 for "expense incurred to stay or limit results of casualty" has been conceded to the extent of the latter amount.

In this connection you are advised that as the result of the conference held in your behalf in this office September 10, 1930, this office proposes to allow the amount shown above representing the amount expended in repairing the damage done to your property caused by a certain underground disturbance, which resulted in the sudden subsidence of the surface of a portion of your land.

OPINION.

MCMAHON: The petitioner contends that he is entitled to a deduction for loss sustained during the year 1927 and not compensated for by insurance or otherwise, under section 214(a)(6) of the Revenue Act of 1926. ¹

The principal question to be determined is whether the sinking of petitioner's property described in our findings is within the meaning of the phrase "or other casualty." (Emphasis supplied.)

As appears from the statement attached to the notice of deficiency, the respondent in determining the asserted deficiency "conceded" that the petitioner was "entitled to a deduction * * * for loss sustained from Casualty" for the year before us, "to the extent of" $14,684.26. (Emphasis supplied.)

In proceedings of this character a decision turns upon the facts and circumstances of each proceeding; and, under the peculiar and unusual facts and circumstances detailed in our findings of fact, the Commissioner was correct in thus treating the phenomenon there described as a casualty. In our opinion the loss was the result of a casualty within the meaning of the statute. ²

As appears from the statement attached to the notice of deficiency, the respondent attributes the damage done to petitioner's property to "a certain underground disturbance, which resulted in the sudden subsidence of the surface of a portion of" the land.

In the instant proceeding there was the unexpected, unusual, unlooked for extensive physical alteration of the earth's surface, in the nature of a catastrophe, which resulted disastrously to the petitioner.

The evidence is clear and undisputed that the sinking was unexpected, It did not proceed from a definitely known cause. It was not an ordinary sliding of the bank, often occuring on lake shore property, but was the result of a subterranean disturbance, the exact cause of which is not known or ascertainable. It was an unusual effect of several causes and conditions. We hold, therefore that the phenomenon, as heretofore described, was a casualty within section 214(a)(6).

The instant proceeding is distinguishable, upon the facts, from the situation presented in I.T. 1567, C.B. II-1, p, 90, referred to by respondent in his statement attached to the notice of deficiency but not cited in argument or on brief. It involves ordinary action of the sea, during storms, upon residence property adjacent thereto, requiring no expenditures for repairs or removal.

As appears from this same statement, respondent allowed petitioner to deduct his loss to the extent of $14,684.26. This apparently was done upon the theory, which we deem to be correct, that a loss resulting from a casualty, under section 214(a)(6), is deductible notwithstanding that the property has not completely disappeared or has not been completely lestroyed. While no question in this respect has been raised in the pleadings, at the hearing, or on brief, it may not be amiss to point out that it has been repeatedly held by the courts and the Board, under this and similar sections in other acts, that losses resulting from partial destruction of or damage to property attributable to causes specified in these sections are deductible; ³ and no authorities to the contrary have been cited or have come to our notice. In Shearer v. Anderson, 16 Fed.(2d) 995, the court said: "Shipwreck does not mean complete loss; damage to the ship suffices. * * * Furthermore the ship may be a pleasure yacht in no way connected with a trade or business."

The next question to be determined is the amount of the loss arising from the casualty sustained by the petitioner.

The respondent on brief suggests two "yardsticks" or methods for determining the amount of the loss: (1) The amounts expended by the petitioner during 1927, 1928, 1929, and 1930 to arrest the sinking of the land and to restore the property to its original condition, citing Shearer v. Anderson, supra; and (2) the amount obtained by multiplying the cost by the difference between the value immediately before the casualty and the value immediately after the casualty divided by the value immediately before the casualty, as follows:

Value prior to casualty - value after casualty/Value prior to casualty X cost = amount of loss, or, arithmetically expressed in the figures presented in this proceeding:

$113,750 - $50,000/$113,750 X $128,903.41 = $72,242.57, the amount of loss.

In our opinion the aggregate amount expended by the petitioner for repairs does not adequately or fairly measure the loss sustained by him as a result of the casualty. The evidence discloses that the repairs made did not restore the property to its original condition before the casualty and that such amount does not represent the loss sustained based on cost. Furthermore, there is no basis in the statutes for holding that cost of repairs measures the amount of the loss in a situation such as we have here. Moreover, section 214(a)(6) of the Revenue Act of 1926 expressly provides that the basis to be used in determining the loss shall be the same as provided in section 204 of the same act. ⁴ Under the latter section "cost" is the basis applicable where, as in the instant proceeding, the property was acquired after February 28, 1913.

There is, however, nothing in the applicable provisions of the statutes contrary to the second of the "yardsticks" suggested by respondent and illustrated by the formula. We have not overlooked section 202(a), Revenue Act of 1926, which, among other things, is expressly limited to situations where something may be realized.

The loss allowed by the act is a loss arising from casualty. The difference between the value of the property prior to the casualty and its value after the casualty constitutes the loss due to the casualty. However, under the applicable provisions of the act, in determining the amount of the deductible loss, cost must be used as the basis, the amount of the deductible loss in the event of total loss being limited to the cost of the property and in the event of partial loss being limited to a proportion of the cost dependent on the difference in values before and after the casualty (the same being wholly due to the casualty) as compared with the value before the casualty. This is most clearly illustrated by the formula set forth above, and is a fair and reasonable way of determining the amount of the loss caused by the casualty. Hence, the amount of deductible loss is $72,242.57, which in our opinion is the amount of the loss sustained by the petitioner, due to the casualty, under the applicable statutes.

While the respondent on brief contends that the petitioner has failed to show that the damage to his property was the result of a casualty, it appears from the statement attached to his notice of deficiency that he conceded that the petitioner was entitled to a deduction for loss sustained from a casualty to the extent of $14,684.26. Therefore, this amount, if it has been allowed as a deduction by the respondent in his computation of petitioner's tax liability for the year 1927, is to be deducted from the amount of $72,242.57, upon recomputation of petitioner's tax liability under Rule 50 in accordance with this opinion.

Shearer v. Anderson, supra, thus relied upon by the respondent, is not controlling. It is governed by the 1918 Act which contained no provisions, such as are applicable in the instant proceeding, to the effect that the basic shall be cost. These provisions first appeared in the 1924 Act.

In Tracy V. Buckwalter,20 B.T.A. 1005">20 B.T.A. 1005, which arose under the 1924 Act and involved a loss caused by fire, value prior to the fire was used as the basis. However, in E. C. O'Rear,28 B.T.A. 698">28 B.T.A. 698, which arose under the 1921 Act and involved the destruction of a residence by fire, the Board stated:

The deduction for fire loss must be computed upon the cost of the property acquired subsequent to February 28, 1913, and upon the fair market value on March 1, 1913, of the property acquired before that date. Sec. 214(a)(6), Revenue Act of 1921. In Tracy V. Buckwalter,20 B.T.A. 1005">20 B.T.A. 1005 (affirmed on other points 61 Fed.(2d) 571), the Board erred in using value at the time of destruction. The cost and value should not be reduced by depreciation or obsolescence. Deposit Trust & Savings Bank, Executor,11 B.T.A. 706">11 B.T.A. 706; W. B. Brooks,12 B.T.A. 31">12 B.T.A. 31; affirmed on other points 35 Fed.(2d) 178. Cf. J. A. Talbot,23 B.T.A. 792">23 B.T.A. 792.

Respondent also contends that the burden of proof is upon the petitioner to show that the damage was due to one of the cause set forth in the statute and that upon the evidence the doctrine of ejusdem generis can not be applied, for it is not shown what specifically caused the damage. As heretofore indicated, we can not agree with the reason given for this contention. We agree, however, that the doctrine is not applicable here. ⁵

The respondent contends further that the loss claimed represents a mere diminution in value of the property and has not been finally determined by a closed and completed transaction.

On brief, however, respondent takes the position that "a casualty to property constitutes a disposition of theproperty", citing Pioneer Cooperage Co.,17 B.T.A. 119">17 B.T.A. 119; affd., 53 Fed.(2d) 43; certiorari denied, 284 U.S. 686">284 U.S. 686. Furthermore, it has been held that when a casualty occurs resulting in a loss the transaction is closed and the amount of the loss is deductible, under provisions essentially similar to the corresponding provisions applicable in this proceeding. ⁶

The respondent contends further that, granting a casualty was the cause of the damage to petitioner's property, the amount of the loss should be limited to the land, as the house was in no way physically damaged. We do not agree with this contention.

It is common knowledge that the location of a residence, as well as its surroundings and the character of the neighboring property, greatly affects the value not only of the land, but, perhaps to a greater extent, that of the buildings thereon. Location, adaptability, and usefulness for either commercial, agricultural, or residential purposes give land value for purchase, sale, and ownership. This applies to buildings or other improvements on the land. They become an integral part of it and to divorce them in the situation here present would be contrary to the common, ordinary understanding and conception of such values.

In 1927 an event occurred which clearly and beyond doubt established the instability of the land, at least for a period extending over a number of years. The loss sustained by the petitioner arose from an identifiable event which established instability. That fact becoming public knowledge, because of the unusual and extraordinary character of the event and its peculiar result and effect, completed and fixed the loss so that it was capable of being ascertained in terms of dollars and cents. The continuing manifestation of such instability and the effect of the remedies applied are in the nature of cumulative evidence of the instability of the land,

No mere paper loss or fluctuation in price or value is here involved. Though the petitioner retained the property and the loss must be measured as heretofore indicated, the loss is an actual loss, for it resulted from damage to and destruction of petitioner's property. In testifying on cross-examination with respect to the method pursued by the committee which appraised the property for the Milwaukee Real Estate Brokers Board, a member of the committee, as witness for the petitioner, in a few sentences rather graphically described the damage:

We did not have to inspect the depression very carefully because, as we got into the second floor and looked out over the bedroom; we looked down a very precipitous bank; in fact, perpendicular, 40 to 50 feet, with a raw clay bank there, and we did not dally any longer than we had to in that building - I am frank to say that - for fear that there might be a further depression. This was very extensive in width, and at that time no one could tell whether that would go any further.

He testified further on cross-examination as follows:

Q. And, it is your opinion that this simply affected the value of the land, and not the physical value of the house?

A. Oh, no, it affects the value of the building just as much as if the new courthouse was placed in the middle of the Sahara Desert. It would be valueless. This is the overdevelopment of an inferior lot, which immediately reflects upon the value of the improvement.

Q. When did you visit this property prior to the appraisal by the Committee?

A. When the publicity first occurred relative to this phenomenon, which was possibly a period of three to six months prior to the time of the appraisal - six months more likely than three months.

* * *

Q. And the day after this thing occurred, you could not have gotten a purchaser for any more than $48,000?

A. Yes; and I do not believe I could have gotten that for it, unless the purchaser might not have gotten full information of what had occurred there, after restoration.

* * *

The damage to the house was none the less actual and real. The land upon which the house was located was injured. There was a subterranean disturbance, not visible to the eye. There was a level space about thirty feet in width between the house and the edge of the slope prior to the casualty, which was reduced to a width of about eight feet. Land, 22 feet in width, level with the base of the house, dropped 40 to 50 feet, and the contour of the slope was drastically changed, destroying that part of the property which gave it the greatest beauty and value.

It is true that various sitations may arise where the injury to land may not affect the buildings and improvements thereon or only in a slight degree. However, such is not the case here, an the house and lot should be treated as a unit in measuring the loss sustained. Here the injury to the land caused greater damage to the house than to the land itself when viewed in the light of cost and values. The cost of the house was $102,092.93, and the cost of the lot was $26,810.48. However, the fair market value of the house and lot after the sinking of the land was $36,500 and $13,500, respectively. This results in a decrease from cost to fair market value of $65,592.93 and $13,310.48 on the house and lot, respectively. or a decrease of approximately 64 percent on the house and approximately 49 percent on the lot. This decrease does not represent a mere diminution in value resulting in the usual and ordinary course of events, in which case no deduction would be allowable, but a loss caused by an event which was unforeseen, unusual, unexpected, not brought about by economic conditions, a change in its use, or by acts of the petitioner or others. The cause of the loss was entirely beyond his control and due to a subterranean disturbance.

While we are not here concerned with the recovery of damages or indemnity for loss resulting from unlawful or wrongful act, it may not be inappopriate to point out the rule evolved in that regard in reference to the measurement of damages where the injury to land is of a similar character. As a general rule the diminution in value of the whole property is the measure of damage where the injury to realty is of a permanent nature. ⁷ In Nelson v. Village of West Duluth, cited in this footnote, the court further held that the trial court did not err in excluding evidence of the separate value of the building on the lot, since the evidence that was admitted showed the value of the whole property, land and building, before the injury and after the injury.

Apparently the above rule was followed in cases which arose under corresponding provisions of the Revenue Act of 1921, previously cited herein for other purposes. ⁸ In all of these cases, although only certain parts of the property involved were physically damaged or injured, the amount of loss was based on the damage to the property as a whole.

Reviewed by the Board.

Decision will be entered under Rule 50.

MARQUETTE, STERNHAGEN, AND ARUNDELL dissent.

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Footnotes

• 1. SEC. 214. (a) In computing net income there shall be allowed as deductions:

  (6) Losses sustained during the taxable year of property not connected with the trade or business (but in the case of a nonresident alien individual only property within the United States) if arising from fires, storms, shipwreck, or other casualty, or from theft, and if not compensated for by insurance or otherwise. The basis for determining the amount of the deduction under this paragraph, or paragraph (4) or (5), shall be the same as is provided in section 204 for determining the gain or loss from the sale or other disposition of property. ↩

• 2. Chicago, etc. R.R. Co. v. Pullman Car Co.,139 U.S. 79">139 U.S. 79, 86; Benjamin or Metropolitan St. Ry. Co. 151 S.W. (Wis.) 91; William J. Mattheson,18 B.T.A. 674">18 B.T.A. 674; affd., Mattheson v. Commissioner 54 Fed.(2d) 1537; Shearer v. Anderson, 16 Fed.(2d) 995; Webster's New International Dictionary; Black's Law Dictionary; Ballentine Law Dictionary; Bouvier's Law Dictionary; vol. 1, Words & Phrases, 1st, 2d and 3d series; 11 C.J. 29-30, cases cited therein; United States v. New York O. & W. Ry. Co.,216 Fed. 702, 705; O.D. 1076, 5 C.B. 138 (1921); and I.T. 2231, C.B. IV-2, p. 53. See also Eaton v. Glinderman, 195 Pac. (Ida.) 90; Webb v. Baldwin, 147 S.W. (Mo.) 849, 851; Brisco v. Metropolitan St. Ry. Co.,↩ 120 S.W. (Mo.) 1162; Century Dictionary; 1 C.J. 390-392, 394-395, 1173-1180, and cases cited therein.

• 3. Ferguson v. Commissioner (C.C.A., 10th Cir.), 59 Fed.(2d) 893; Pioneer Cooperage Co. v. Commissioner (C.C.A., 8th Cir.), 53 Fed.(2d) 43; certiorari denied, 284 U.S. 686">284 U.S. 686; affirming Pioneer Cooperage Co.,17 B.T.A. 119">17 B.T.A. 119; Whipple v. United States (U.S. Dist. Ct., Dist of Mass.), 25 Fed.(2d) 519; Shearer v. Anderson (C.C.A., 2d Cir.), 16 Fed.(2d) 995; Francis M. Bass,30 B.T.A. 4">30 B.T.A. 4; Frederick H. Nash,22 B.T.A. 482">22 B.T.A. 482; John S. Hall,16 B.T.A. 71">16 B.T.A. 71; Mary Cheney Davis,16 B.T.A. 65">16 B.T.A. 65; W. B. Brooks,12 B.T.A. 31">12 B.T.A. 31; W. B. Bronson,9 B.T.A. 1008">9 B.T.A. 1008; and F. M. Reed,6 B.T.A. 1140">6 B.T.A. 1140↩.

• 4. SEC. 204. (a) The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; * * * ↩

• 5. Mason v. United States,260 U.S. 545">260 U.S. 545; Corona Coal Co. v. United States, 21 Fed.(2d) 489; cases cited in 36 Cyc. 1121-1122; Prussian v. United States,282 U.S. 675">282 U.S. 675, 679; United States v. Mescall,215 U.S. 26">215 U.S. 26; and Motty Eitingon,27 B.T.A. 1341">27 B.T.A. 1341. See also Shearer v. Anderson,↩ 16 Fed.(2d) 995.

• 6. To this effect are the cases cited in footnote No. 3. ↩

• 7. Barnett v. St. Anthoney Falls Water Power Co.,33 Minn. 265">33 Minn. 265; 22 N.W. 535">22 N.W. 535, Nelson v. Village of West Duluth,55 Minn. 497">55 Minn. 497; 57 N.W. 149">57 N.W. 149; Fessum v. Chicago St. P. Ry. Co.,80 Minn. 9">80 Minn. 9; 82 N.W. 979">82 N.W. 979; Cooper v. New York S. & W. Ry. Co.,122 App.Div. 128; 106 N.Y.S. 611">106 N.Y.S. 611; Harvey v. Sanitary Dist. of Chicago,260 Ill. 54">260 Ill. 54; 102 N.E. 1070">102 N.E. 1070↩.

• 8. Whipple v. United States (U.S. Dist. Ct., Dist. of Mass.), 25 Fed.(2d) 519; Frederick Nash,22 B.T.A. 482">22 B.T.A. 482; John S. Hall et al., Executors,16 B.T.A. 71">16 B.T.A. 71; and Mary Cheney Davis,16 B.T.A. 65">16 B.T.A. 65↩.