My chronicle of how the IRS and Tax Court affect taxpayers' daily lives.

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Friday, December 11, 2009

Drunk Driving & Casualty Losses

Decided and published yesterday, we have an amazing case (hat tip to Art Larson, E.A.) which deals with the difference between negligence and gross or willful negligence in regards to a casualty loss incurred - and caused - by the taxpayer.

Justin Rohrs, representing himself, petitioned the tax court to allow a $33,629 casualty loss for damage to his 3 month old Ford F-350. The deduction resulted in a $6,230 tax savings, which the IRS disallowed, and added a $1,246 accuracy related penalty.

Mr. Rohrs purchased the vehicle in August 2005. He attended a gathering at a friend’s house in October 2005, where he consumed alcohol. He had arranged for transportation to and from the party, but subsequent to returning home, he drove to his parents’ house. On the way, he skidded off of the road, rolling his truck over and damaging it severely. He was cited for DUI with a blood alcohol content of .09.

A casualty loss can be claimed for the "damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual." (Quickfinder 5-15). The deduction is limited to 10% of your adjusted gross income, less a $100 deductible, and is an itemized deduction. The loss must be reduced by any insurance claim. Nondeductible losses include accidental breakage or damage by a pet, disease or insect damage to plants, termite or moth damage, or car accident if caused by willful negligence or willful act.

The taxpayer did not dispute that he was negligent for driving while intoxicated. But the court notes, that there is no prohibition against taking a loss when the taxpayer is negligent, but only willfully negligent. People v. Olivas explains that "the state of mind of a person who acts with conscious indifferences to the consequences is simply 'I don't care what happens;." This is also called conscious indifference. The argued the differentiation between these two concepts.

The taxpayer showed due care by arranging for transportation to and from the party. Additionally, he argued that because he allowed time for his body to process the alcohol before leaving for his parents, he exercised some care. If he "willfully" negligent, he would not have gone to any of this trouble. Additionally, he argued that there was no way to note what the true cause of the accident was, as the weather conditions were very windy.

The court noted that, although contrary to public policy, the taxpayer's drunken driving does not automatically disqualify the taxpayer from claiming a casualty loss. The tax court is not "empowered to judge petitioner's action from a criminal perspective or to punish him for his actions." They can only interpret whether his actions were considered "willful."

The court agreed with the pro-se taxpayer's argument, and a decision was entered for the taxpayer.

Aaron's Take: I am very impressed with the argument made by this taxpayer. I also abhor his behavior. But, just like the judges in this case, it is not my place to make a judgment about the taxpayer's ethics or sense of personal responsibility. I am sure he has already been subject to the punishment allowed by criminal and civil courts. All clients deserve good quality representation and to be treated fairly and with due process. This is a taxpayer whose patience truly was rewarded. Hopefully his judgement has improved, and he now knows what his limitations are.

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Aaron Blau, E.A. is the Vice President of the Central Arizona Chapter of Enrolled Agents and a member of the Government Relations Committee of the National Association of Enrolled Agents. The opinions and ideas expressed here are in no way representative of the official position of the National Association of Enrolled Agents, Arizona Society of Enrolled Agents or the Central Arizona Chapter of Enrolled Agents.

For official comments, please e-mail NAEA Director of Communications at or Arizona Society president

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