Academic journal article Journal of Accountancy

Co-Ops and Casualties

Academic journal article Journal of Accountancy

Co-Ops and Casualties

Article excerpt

The Tax Court held that a resident of a coop apartment complex could not claim a casualty loss deduction for an assessment to repair a common area in which she held no property interest beyond a right to use it.

Christina Alphonso owned stock in Castle Village Owners Corp., a cooperative housing corporation under IRC [section] 216. This allowed her to lease an apartment in Castle Village in the Washington Heights neighborhood of New York City, on a bluff overlooking the Hudson River. The lease also allowed her to use the apartment complex's gardens and common area. The lease required monthly payments and allowed the corporation to assess tenants for extra costs to maintain the buildings and common areas.

In 2005, Castle Village's 70-foot-high retaining wall above the river and the Henry Hudson Parkway collapsed, causing significant damage. The corporation assessed its stockholders to repair the wall and other damage, and Alphonso paid $26,390 as her share. She deducted the payment as a casualty loss on her 2005 income tax return. The IRS denied the deduction on the grounds that the wall collapsed from gradual weakening and therefore did not qualify as a casualty under section 165(c)(3), also that it was on property owned not by her but by Castle Village.

In the Tax Court, the government cited as its basis for the latter argument West v. U.S., 259 F.2d 704 (3rd Cir. 1958). In that case, the taxpayer was a member of a social club that owned land on which it built a dam. The taxpayer built a cottage on property he leased from the club. …

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