The parties apparently agree that, at least as far as the majority of the items are concerned, the property destroyed was used in a trade or business or was held for the production of income and was totally destroyed. We, therefore, are concerned, pursuant to section 1.165-7(b)(1), Income Tax Regs., with petitioner's bases or costs of the items destroyed. Petitioner, however, has not produced any evidence as to what his bases or costs in the various items may have been. Indeed, while they may have had value to petitioner, it is clear that the memorabilia had no costs to petitioner, and petitioner would have no bases in these items. With respect to what petitioner describes as "Labor/Inconvenience/Distress", 2006 Tax Ct. Summary LEXIS 96">*100 as we understand petitioner's testimony, the deduction was for mental upset, having to prepare new lecture notes, etc., and for teaching. These are not items of property the losses of which are deductible as casualty losses.

Turning to the item described as a book manuscript, petitioner testified that the manuscript was the foundation for three future books. He determined that it had a fair market value of $ 15,000 because he had received advances from publishers for previous books. But, petitioner admitted that he had no record of the cost or expenses (apart from his time and labor) in the creation of the manuscript. In short, he has not established that he had a cost basis in the manuscript.

With regard to copies of magazines, journals, and books, again petitioner has no records concerning the costs of these items. Furthermore, petitioner admits that he would have deducted the costs of at least some of the magazines, journals, and books in prior years. We note also with respect to the other claimed deductions, including particularly the manuscript, any costs would appear to have been deducted in prior years. See, e.g., sec. 263A(h); see also Hadley v. Commissioner, 819 F.2d 359">819 F.2d 359 (2d Cir. 1987).2006 Tax Ct. Summary LEXIS 96">*101

Turning to the remainder of the items claimed as a casualty loss deduction, even if we assume that petitioner had bases or costs in the amounts claimed, petitioner collected $ 12,500 from insurance, and respondent allowed a casualty loss deduction of $ 9,448. Under these circumstances, we fail to understand how the bases or costs of these items would be deductible. We sustain respondent's determination with respect to the casualty loss deduction.

Section 6662--Penalty

Section 6662(a) provides a penalty in an amount equal to 20 percent of the portion of any underpayment attributable to, among other things, "Any substantial understatement of income tax". Sec. 6662(b)(2). A substantial understatement of income tax exists "if the amount of the understatement for the taxable year exceeds the greater of--(i) 10 percent of the tax required to be shown on the return for the taxable year, or (ii) $ 5,000." Sec. 6662(d)(1)(A). For purposes of section 6662(a), an understatement may be reduced if there is "substantial authority" for the position taken, or if the facts were adequately disclosed in the return and there was a "reasonable basis" for the position taken. Sec. 6662(d)(2)(B). Further, 2006 Tax Ct. Summary LEXIS 96">*102 no penalty will be imposed if there was a reasonable cause for the understatement and the taxpayer acted in good faith. Sec. 6664(c). There is no substantial authority for the position taken here. The facts concerning the unreported items of income that petitioner conceded, supra note 2, were obviously not disclosed and are not subject to the section 6662(d)(2)(B) exception from the penalty. While petitioner did disclose the fact that there was a casualty loss deduction, we cannot say there was a reasonable ground for the amount of the deduction claimed as a loss. Petitioner made no attempt to ascertain the correct tax treatment of the items composing the casualty loss deduction claimed. A "reasonable" basis or reasonable cause cannot be transmuted from intentional ignorance. We sustain respondent's determination of the section 6662(a) penalty.

Reviewed and adopted as the report of the Small Tax Case Division.

To reflect the foregoing,

Decision will be entered under Rule 155.