Court Opinion

ID: 4484398
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:43.941517+00
Date Added: 2024-06-11T08:48:30.113529
License: Public Domain

Sterrett, J., dissenting: I respectfully dissent. Section 165, I.R.C. 1954, is designed to permit a deduction when a taxpayer suffers an economic loss. The obvious corollary is that, as provided in subsection (a), the loss must not be “compensated for by insurance.” Subsection (c)(3) further limits losses incurred by individuals with respect to nonbusiness property to specific circumstances, i.e., “losses * * * from fire, storm, shipwreck, or other casualty, or from theft.” The foregoing circumstances have a common denominator: they are caused by forces external to the taxpayer and they are beyond the victim’s volition. The courts have frequently emphasized the unexpected nature of the loss when defining “casualty”; equally unexpected is a theft. The latter term is defined in section 1.165-8(d), Income Tax Regs., as including “larceny, embezzlement, and robbery.” The petitioners premise their claimed loss on the admitted fact that a theft did occur, resulting in an obvious economic loss to them. However, equally conceded is the fact that the petitioners’ stolen property was covered by insurance. There is no allegation that the insurance company questioned its liability or even the amount. Nonetheless, the petitioners chose not to file a claim and accept their contractual right to be made whole through reimbursement. Thus, it seems beyond peradventure that the operative fact resulting in the loss was not a theft (or any other unexpected event beyond their volition), but the petitioners’ voluntary act in refusing to accept their entitlement. Just as a taxpayer cannot avoid taxation by turning his back on income, a taxpayer should not be allowed a deduction because he has refused to accept reimbursement. See generally Central Tablet Manufacturing Co. v. United States, 417 U.S. 673, 684-685 (1974). On page 487, the majority herein says: all losses compensated by insurance are also, as a necessary concomitant, covered by insurance. Nonetheless, it should be equally obvious that the converse, i.e., that all losses covered by insurance are also compensated for, is not necessarily true. From one perspective, the above language begs the question because if one is covered by insurance, he will be compensated unless he voluntarily chooses not to file a claim. In the latter event the loss is due, not to one of the circumstances listed in section 165(c)(3) — not to a theft — but rather to the insured’s own election not to accept reimbursement under his insurance policy, a separate identifiable event. To try to draw a distinction between covered and compensated, in a section 165 setting, is to amend, judicially, subsection (c)(3) by adding another circumstance under which a taxpayer may take a deduction for a loss. We were told in International Trading Co. v. Commissioner, 484 F.2d 707, 712 (7th Cir. 1973), revg. 57 T.C. 455 (1971), that there was “no room for the exercise of judicial discretion in the construction of Section 165(a).” I see even less room for the judicial discretion exercised by the majority in its interpretation of section 165(c)(3). Scott, Tannenwald, and Parker, JJ., agree with this dissent.