Reference no: EM132429442

Question - Business Casualty Loss

Facts: Your client, Mr. Brown Inc., owns and operates an auto-motive repair shop in Cooperstown, New York. Mr. Brown specializes in replacing and repairing Brown on cars, sport utility vehicles, and pickup trucks. In November of last year, the roof over two-thirds of Mr. Brown' building collapsed due to the weight of the snow on the roof. Since then, the portion of the building damaged by the roof collapse has been demolished, an addition was built onto the undamaged (one-third) portion of the building, and Mr. Brown reopened for business on September 1st of this year. The fair market value of the building (immediately before the roof collapse) was $1,800,000, and Mr. Brown' adjusted federal tax basis in the building was $300,000. The fair market value of the building immediately after the roof collapse was $600,000. Mr. Brown received $1,200,000 of insurance proceeds due to the destruction of two-thirds of the building. Mr. Brown spent $1,500,000 in demolition and construction costs (including $300,000 of its own funds and the $1,200,000 of insurance proceeds). Mr. S. Perry Thomas, the president of Mr. Brown Inc., would like to know the federal income tax consequences of this matter.

Required: Identify the relevant Code Sections and regulations and find a court decision that is relevant to Mr. Brown' situation. The relevant case must be current.