Court Opinion

ID: 4495925
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:35.369051+00
Date Added: 2024-06-11T14:54:13.491761
License: Public Domain

Leech,
dissenting: We are not here concerned with a determination of, if, and when a loss was sustained. Cf. Lucas v. American Code Co., 280 U. S. 445.
The partnership here sustained a definite, completed and admitted loss of $34,303.61 in 1924, when the burglary of that amount occurred in 1924. Peterson Linotyping Co., 10 B. T. A. 542; Grenada Bank, 32 B. T. A. 1290.
The firm deducted that loss, as such, in its tax return for that year. Under the specific and unambiguous terms of the applicable statutory provision, such loss was deductible then .and then only. Congress, alone, has the authority to change that statute.
Neither the time nor amount of the loss here is affected by whether the partnership- was compensated for that loss in any amount. That fact controls nothing but the amount in which the loss, admittedly *789sustained, was deductible. The statutes1 do not limit such deducti-bility here, to the amount not “ covered ” by insurance, but limit it to the amount “ * * * not compensated for by insurance * *
Our inquiry is then, whether the present record establishes that compensation for that loss, and its amount, was realized by the partnership during that tax year.
The partnership was on an accrual basis. Only such “ compensation ” was then realized as was then accruable. Commissioner v. Thatcher & Son, 76 Fed. (2d) 900, reversing 30 B. T. A. 510. And, only such “ compensation ” was then accruable as it was reasonably certain then the partnership would receive. North American Oil Consolidated v. Burnet, 286 U. S. 417; Commissioner v. Thatcher & Son, supra; Dexter Sulphite Pulp & Paper Co., 23 B. T. A. 227. Nor is that legal accruability in 1924 affected by the. settlement of the contested insurance claims in 1925. Central United National Bank, 33 B. T. A. 588. Cf. Ithaca Trust Co. v. United States, 279 U. S. 151.
Here, in 1924, the partnership held policies of insurance in two English companies operating through Lloyds. The theft occurred in March of that year. From that time until after December 31, 1924, the companies not only denied the amount of the loss, but repudiated all liability. Furthermore, until after the end of 1924, it seemed impossible for the partnership to secure service in a suit on the policies brought in California, and, if judgment on such suit were to be had, there were no assets in that state with which to satisfy it.
Certainly, under such circumstances, the insurance companies could not have accrued any amount as a deduction for 1924. Lucas v. American Code Co., supra; Dexter Sulphite Pulp & Paper Co., supra.
A fortiori, the same doubtful character of the contested liability which would not support that assumed deduction prevented the accrual of the same amount by the present partnership. That is the decision of the Circuit Court of Appeals for the Second Circuit in the case of Commissioner v. Thatcher & Son, supra. There, the “ compensation ” of a taxpayer for a loss sustained by reason of a default of his subcontractors was held not to have been accruable, and thus not realized, because of the contemporaneous existence of the taxpayer’s contested rights to recoupment on the subcontractors’ breach of contract, and the subcontractors’ surety bonds for faithful performance of their contracts. I perceive no difference, for present purposes, in the legal status of the partnership here, under their insurance policies.
The disputed loss of the partnership in the amount of $34,303.61 occurred in 1924 and was not “ compensated for by insurance or otherwise.” Commissioner v. Highway Trailer Co., 72 Fed. (2d) 913, *790reversing 28 B. T. A. 792; certiorari denied, 293 U. S. 626, and Commissioner v. Thatcher & Son, supra.
Compensation for that loss, accruable in a later year, is taxable as income in that later year. Burnet v. Sanford & Brooks Co., 282 U. S. 359; Commissioner v. Thatcher & Son, supra; South Dakota Concrete Products Co., 26 B. T. A. 1429.
In my judgment, the petitioners sustained a loss of $34,303.61 in 1924, for which they were not compensated in any amount during that year. The loss was, therefore, deductible m totó on their tax returns covering that period.
Tkammell agrees with this dissent.