rp-17-60.pdf

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26 CFR 601.105: Examination of returns and claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part 1, §§ 165; 1.165-7(a)(2); 1.165-7(b).)

Rev. Proc. 2017-60

SECTION 1. PURPOSE
This revenue procedure provides guidance to individuals regarding the federal
income tax treatment of amounts paid to repair damage to their personal residences
resulting from deteriorating concrete foundations caused by the presence of the mineral
pyrrhotite.
SECTION 2. BACKGROUND
.01 Residents in the northeastern part of the United States have reported
problems with certain residential concrete foundations. In August 2015, the Connecticut
Office of the Attorney General and the Connecticut Department of Consumer Protection
(DCP) began investigating numerous complaints by homeowners concerning
deteriorating concrete foundations. The conclusions of the investigation are available in
the “Report on Deteriorating Concrete in Residential Foundations” issued by the DCP
on December 30, 2016.
.02 Investigators concluded that the deterioration of the concrete foundations

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was caused by the presence of pyrrhotite in the concrete mixture used to pour the
foundations. Pyrrhotite is a naturally existing mineral in stone aggregate, which is used
to produce concrete. Pyrrhotite oxidizes in the presence of water and oxygen, leading
to the formation of expansive mineral products, and causing concrete to deteriorate
prematurely.
.03 Pursuant to Connecticut Public Act No. 16-45,
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Connecticut residents with
deteriorating concrete foundations may request a reassessment of the assessed value
of their homes based on a written evaluation from a licensed engineer indicating that the
foundation was made with defective concrete.
.04 The Internal Revenue Service (“Service”) has received inquiries about
whether a loss resulting from a deteriorating concrete foundation constitutes a
deductible casualty loss within the meaning of § 165 of the Internal Revenue Code, the
taxable year any such loss would be deductible, and how the amount of the loss would
be computed.
.05 Section 165(a) generally allows taxpayers to deduct losses sustained during
the taxable year that are not compensated for by insurance or otherwise. For personal-
use property, such as a taxpayer’s personal residence, § 165(c)(3) limits an individual’s
deduction to losses arising from fire, storm, shipwreck, or other casualty, or from theft.
A casualty is damage, destruction, or loss of property that results from an identifiable
event that is sudden, unexpected, and unusual. Rev. Rul. 72-592, 1972-2 C.B. 101.

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2016 Conn. Legis. Serv. P.A. No. 16-45 (H.B. No. 5180) (West).

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Damage or loss resulting from progressive deterioration of property through a steadily
operating cause is not a casualty loss. See Matheson v. Commissioner, 54 F.2d 537
(2d Cir. 1931).
.06 A casualty loss is allowed as a deduction only for the taxable year in which
the loss is sustained. However, if the taxpayer has a claim for reimbursement of the
loss from insurance or otherwise, for which there is a reasonable prospect of recovery,
no portion of the loss is deductible until it can be ascertained with reasonable certainty
whether the reimbursement will be received. See § 1.165-1(c)(4) of the Income Tax
Regulations.
.07 If a taxpayer deducted a loss and in a subsequent taxable year receives
reimbursement for the loss, the taxpayer does not recompute the tax for the taxable
year in which the deduction was taken, but includes the amount of the reimbursement in
gross income for the taxable year in which received, subject to the provisions of § 111,
relating to recovery of amounts previously deducted. See § 1.165-1(d)(2)(iii).
.08 The amount of a taxpayer’s casualty loss generally is the decrease in the fair
market value of the property as a result of the casualty, limited to the taxpayer’s
adjusted basis in the property. See § 1.165-7(b). To simplify the computation of a
casualty loss deduction, existing regulations permit taxpayers to use the cost to repair
the damaged property as evidence of the decrease in value of the property. See
§ 1.165-7(a)(2)(ii).
.09 Section 165(h)(1) and (2) imposes two limitations on casualty loss
deductions for personal use property. First, a casualty loss deduction is allowable only

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for the amount of the loss that exceeds $100 per casualty. Second, the net amount of
all of a taxpayer’s casualty losses (in excess of casualty gains, if any) is allowable only
for the amount of the losses that exceeds 10 percent of the taxpayer’s adjusted gross
income (AGI) for the year.
.10 In view of the unique circumstances surrounding the damage caused by
deteriorating concrete foundations containing the mineral pyrrhotite, the Treasury
Department and the Service conclude that it is appropriate to provide a safe harbor
method that treats certain damage resulting from deteriorating concrete foundations as
a casualty loss and provides a formula for determining the amount of the loss.
Accordingly, for an individual taxpayer within the scope of this revenue procedure, the
Service will not challenge the taxpayer’s treatment of damage resulting from a
deteriorating concrete foundation as a casualty loss if the loss is determined and
reported as provided in this revenue procedure.
SECTION 3. SCOPE
This revenue procedure applies to any individual taxpayer who pays to repair
damage to that taxpayer’s personal residence caused by a deteriorating concrete
foundation that contains the mineral pyrrhotite.
SECTION 4. APPLICATION
.01 A taxpayer who pays to repair damage to that taxpayer’s personal residence
caused by a deteriorating concrete foundation may treat the amount paid as a casualty
loss in the year of payment. For purposes of this revenue procedure, the term
“deteriorating concrete foundation” means a concrete foundation that is damaged as a

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result of the presence of the mineral pyrrhotite in the concrete mixture used to pour the
foundation. The safe harbor under this revenue procedure is available to a taxpayer
who has obtained a written evaluation from a licensed engineer indicating that the
foundation was made with defective concrete, and has requested and received a
reassessment report that shows the reduced reassessed value of the residential
property based on the written evaluation from the engineer and an inspection pursuant
to Connecticut Public Act No. 16-45 (Act). The safe harbor also is available to a
taxpayer whose personal residence is either in Connecticut or outside of Connecticut,
provided the taxpayer has obtained a written evaluation from a licensed engineer
indicating that the foundation was made with defective concrete containing the mineral
pyrrhotite.
.02 The amount of a taxpayer’s loss resulting from the deteriorating concrete
foundation is limited to the taxpayer’s adjusted basis in the property. In addition, the
amount of the loss may be limited depending on whether the taxpayer has a pending
claim for reimbursement (or intends to pursue reimbursement) of the loss through
property insurance, litigation, or otherwise. A taxpayer who does not have a pending
claim for reimbursement, and who does not intend to pursue reimbursement, may claim
as a loss all unreimbursed amounts (subject to the adjusted basis limitation) paid during
the taxable year to repair damage to the taxpayer’s personal residence caused by the
deteriorating concrete foundation. A taxpayer who has a pending claim for
reimbursement, or who intends to pursue reimbursement, may claim a loss for 75
percent of the unreimbursed amounts paid during the taxable year to repair damage to

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the taxpayer’s personal residence caused by the deteriorating concrete foundation. A
taxpayer who has been fully reimbursed before filing a return for the year the loss was
sustained may not claim a loss. A taxpayer who has a pending claim for
reimbursement, or who intends to pursue reimbursement, may have income or an
additional deduction in subsequent taxable years depending on the actual amount of
reimbursement received. See § 1.165-1(d).
.03 Amounts paid for improvements or additions that increase the value of the
taxpayer’s personal residence above its pre-loss value are not allowed as a casualty
loss. Only amounts paid to restore the taxpayer’s personal residence to the condition
existing immediately prior to the damage qualify for loss treatment.
.04 A taxpayer claiming a casualty loss under this revenue procedure must
report the amount of the loss on Form 4684 (“Casualties and Thefts”) and must mark
“Revenue Procedure 2017-60” at the top of that form. Taxpayers are subject to the
$100 limitation imposed by § 165(h)(1) and the 10-percent-of-AGI limitation imposed by
§ 165(h)(2).
.05 Taxpayers who choose not to apply the safe harbor treatment provided by
this revenue procedure are subject to all of the generally applicable provisions
governing the deductibility of losses under § 165. Accordingly, these taxpayers must
establish that the damage, destruction, or loss of property resulted from an identifiable
event that is sudden, unexpected, and unusual, and was not the result of progressive
deterioration through a steadily operating cause. See Rev. Rul. 72-592, 1972-2 C.B.
101; Matheson v. Commissioner, 54 F.2d 537 (2d Cir. 1931). These taxpayers also

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must prove that the loss is properly deductible in the taxable year claimed by the
taxpayer and not in another year. Further, these taxpayers must prove the amount of
the claimed loss and must prove that no claim for reimbursement of any portion of the
loss exists for which there is a reasonable prospect of recovery.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for federal income tax returns (including
amended federal income tax returns) filed after November 21, 2017.
SECTION 6. DRAFTING INFORMATION
The principal author of this revenue procedure is Susie K. Bird of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this revenue procedure contact Susie K. Bird on (202) 317-5100 (not a toll free call).