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Mustola v. Dep't of Revenue

Oregon Tax Court, Magistrate Division

June 12, 2007, Decided; June 12, 2007, Filed

TC-MD 060070A



Plaintiff's appeal from Defendant's assessments for tax years 2001, 2002, and 2003, and from a notice of proposed refund adjustment for tax year 2004. At issue is a net operating loss (NOL) carryforward stemming from a 1996 casualty loss, and Schedule A medical and employee business expenses.

Plaintiffs were represented at trial by Cher Fillman (Fillman), a licensed tax consultant, Kick Butt Taxes & Accounting. Defendant was represented by Kevin Cole (Cole), an auditor with the Oregon Department of Revenue.


There are not a lot of facts known in this case because Plaintiffs' representative did not submit the majority of her exhibits to the court prior to trial, as required by Tax Court Rules-Magistrate Division (TCR-MD) 10 C, and she did not have her clients (Plaintiffs) testify. What is known is that Plaintiffs owned a 3,400 square foot home that was destroyed in February 1996 by a rain-triggered landslide. Plaintiffs' 1,080 square foot garage on the property was also destroyed by the landslide. The Small Business Administration (SBA) evaluated the property in connection with a disaster loan it made in April 1996, and determined  [*2] that the home and garage were a total loss valued at $ 357,000. The SBA determined that Plaintiffs lost personal property valued at $ 3,817. The parties agree that Plaintiffs were not reimbursed by insurance for the loss. Defendant contacted the Columbia County assessor's office and was informed that the value of the home for property tax purposes was $ 74,770 before the landslide and $ 25,070 after the landslide. However, it appears that that value may pertain to the old homestead rather than the new residence.

Kick Butt Taxes and Accounting originally figured the amount of the casualty loss to be $ 177,750 before the applicable statutory deductions that reduced the allowable amount of the loss to $ 176,167. Plaintiffs first took the loss on their 1995 return, as authorized by Internal Revenue Code (IRC) section 165(i)(1). 1 Plaintiffs also reported business losses on their 1995 return and, because of their limited income (AGI) that year, they reported a net operating loss (NOL) carryforward of $ 191,136. All but $ 5,027 of that amount was used on Plaintiffs' returns from tax years 1996 through 1999. Then, in 2000, Plaintiffs determined a larger loss should have been claimed, and they  [*3] increased the carryforward by $ 179,580, which Plaintiffs added to the $ 5,027 remaining balance carryforward from the original calculation. (Def's Answer at 7, 8.) Plaintiffs then claimed the additional loss on their returns for tax years 2000 through 2004, inclusive, using all but $ 382 of the total loss amount of $ 357,330. (Def's Answer at 13.) Defendant audited the 2001 through 2004 returns and denied the additional NOL carryforward.

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2007 Ore. Tax LEXIS 95 *; 2007 WL 1752844

TIMOTHY A. MUSTOLA and CONNIE A. MUSTOLA, Plaintiffs, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.


disaster, expenses, deductions, casualty, tax year, appraisal, medical expenses, carryforward, business expense, Presidentially, substantiated, returns, fair market value, disallowance, entitlement, landslide

Tax Law, Losses, General Losses, Casualty Gains & Losses, Individuals, Business Deductions, Deductibility Requirements, Federal Income Tax Computation, Business Expenses, Entertainment & Trade Expenses, Evidence, Burdens of Proof, Preponderance of Evidence, Income Taxes, Individuals, Estates & Trusts, Deductions, Travel Expenses, Nonbusiness Expenses, Medical Expenses