Jennifer L. Mandel and Eric P. Mandel, Relators,
Commissioner of Revenue, Respondent.
of Appellate Courts Tax Court
A. Pridgeon, David L. Zoss, Edina, Minnesota, for relators.
Swanson, Attorney General, Michael Goodwin, Assistant
Attorney General, Saint Paul, Minnesota, for respondent.
tax court did not err in holding that the taxpayer's
post-casualty-loss appraisal was not a "competent
appraisal" under Treas. Reg. § 1.165-7(a)(2)(i) (as
amended in 1977).
tax court did not err in granting summary judgment to the
Commissioner of Revenue.
and decided by the court without oral argument.
GILDEA, Chief Justice.
case comes to us after the tax court upheld the Commissioner
of Revenue's partial disallowance of a casualty-loss
deduction. Relators Jennifer and Eric Mandel argue that the
tax court erred in holding that the post-casualty-loss
appraisal they relied on to support their casualty-loss
deduction was not "competent" within the meaning of
the applicable treasury regulation. Additionally, the Mandels
argue that the tax court improperly granted summary judgment
to the Commissioner. Because we conclude that the tax court
did not err in determining that the Mandels'
post-casualty-appraisal was not "competent" and the
tax court properly granted summary judgment, we affirm.
2010, the Mandels purchased a home in Minnetonka for $391,
000. On March 22, 2011, rainwater entered the Mandels'
home, damaging the foundation wall and the floors and walls
in the laundry room. The Mandels installed drain tile and a
sump pump; replaced sheetrock, electrical components, and
flooring that had been damaged by the water intrusion; and
performed some landscaping. The Commissioner accepted proof
that the Mandels spent $27, 411 to repair the
property. There is no evidence that any other home
in the Mandels' area suffered a loss around the same
time. And there is no evidence of a general market decline
that would have affected the fair market value of the
Mandels' property at the time of the damage.
March 2012, the Mandels had Reliatel Appraisals perform two
retrospective appraisals in anticipation of claiming a
casualty loss on their 2011 tax return. Reliatel appraised
the property as of March 21, 2011 (the day before the
property was damaged), and as of March 23, 2011 (just after
the property was damaged, but before it was repaired). The
appraiser determined that the fair market value of the
Mandels' property before the damage was $400, 000. In
reaching this valuation, the appraiser relied on a sales
comparison approach, comparing the Mandels' property with
similar homes in the area and making adjustments on the basis
of lot size, home size, number of bedrooms, and other similar
metrics. The appraiser then determined the fair market value
of the property just after the damage to be $298, 000, a
$102, 000 decline from the initial appraisal. The appraiser
calculated the estimated value by subtracting from the
pre-casualty market value the cost of repairs multiplied by
2.6. The appraiser determined the cost of repairs to be
roughly $40, 000, including the nearly $30, 000 the Mandels
already spent to repair the property in addition to $10, 000
for further landscaping to reduce the risk of future
flooding. The appraiser multiplied these costs for repairs
and improvements by 2.6 because, in his experience, buyers
are reticent to purchase homes with water damage, "as
they carry a stigma in the marketplace." According to
the appraiser, the buyer pool for water-damaged homes is
typically limited to investors, who will only purchase a home
if the cost of the property is reduced by roughly 2.6 times
the cost of repairs.
on the Reliatel appraisal, the Mandels deducted $82, 247 from
their income reflected on their 2011 federal tax
return. This deduction also affected the
Mandels' Minnesota taxable income because Minn. Stat.
§ 290.01, subd. 19 (2014), defines "net
income" as "federal taxable income."
an audit, the Commissioner disallowed much of the
Mandels' casualty-loss deduction. Specifically, the
Commissioner reduced the allowable tax deduction to $7, 658,
based on the cost ...