Early this year, a taxpayer was clearing dry brush from behind his Malibu home in California. He
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in the neighbor's house died of smoke inhalation. The taxpayer was charged with negligent homicide. The trial is pending.
The taxpayer wishes to take a casualty loss deduction for the loss of his house, which was worth an estimated $1,000,000 at the time of the fire. The taxpayer purchased the home for $900,000 only six months earlier. Insurance has refused to compensate for the loss under the circumstances. The taxpayer is currently out on bail. He is the brother of one of your very significant clients who has asked you to provide tax advice to the taxpayer.
a. Do the Treasury regulations provide further guidance in this situation?
b. Do the Treasury regulations help to refine or add to the initial research question?
c. Do the regulations adequately address the research question? If so, what are your conclusions, and on what are they based?
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