Popa v. Commissioner , 73 T.C. 130 ( 1979 )

Fay, J.,

dissenting: While I sympathize with petitioner, I must nevertheless respectfully dissent from the majority’s conclusion that he sustained a deductible loss.

At the outset, I think it important to bear in mind that not all uninsured economic losses suffered by an individual are deductible. Were that the case, there would be no question that petitioner would be entitled to some deduction for the unfortunate loss of his property. However, section 165(c), I.R.C. 1954, expressly provides otherwise:

(c) Limitations on Losses of Individuals. — In the case of an individual, the deduction under subsection (a) shall be limited to-

il) losses incurred in a trade or business;

(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and

(3) losses of property not connected with a trade or business, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft. * * *

Thus, if an individual’s loss is not connected with a trade or business or incurred in a profit-seeking transaction, it is deductible only if it arises from casualty, as defined, or theft.

For example, if petitioner abandoned his property as respondent contends, petitioner is not entitled to any deduction, since there is no evidence his personal property was used in a trade or business. Shea v. Commissioner, 24 B.T.A. 798, 803 (1931). Indeed, the findings of fact state petitioner himself claimed “he had to abandon [his property] in Vietnam,” supra at 131. Yet, the majority opinion does not address this possibility despite its statements that “Saigon fell to enemy troops a day or two after petitioner left,” supra at 132; “the United States abandoned Saigon,” supra at 133; and “A few days before the city fell, the United States Government was actively evacuating its citizens from the city,” supra at 133.¹

Similarly, it is clear petitioner would not be entitled to a loss deduction in the event his property was seized by the North Vietnamese Government after entering Saigon because that would not constitute a “theft.” Farcasanu v. Commissioner, 50 T.C. 881 (1968), affd. 436 F.2d 146 (D.C. Cir. 1970); Powers v. Commissioner, 36 T.C. 1191 (1961). See Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964).

In the instant case, petitioner and the majority rely upon that part of section 165(c)(3) which permits an individual to deduct the loss of property arising from a “fire, storm, shipwreck, or other casualty.”² The relevant inquiry therefore is whether petitioner has produced sufficient evidence to “show that he comes within [the statute’s] terms.” New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). I submit that he has not.

In Powers v. Commissioner, 36 T.C. 1191 (1961), the taxpayer purchased an automobile in West Berlin, Germany. Three days later, while enroute from Berlin to Hamburg, the taxpayer’s automobile was seized by the East German police and never returned to him. In holding that the taxpayer was not entitled to a deduction for the clear loss he sustained, we stated:

Petitioner offers some suggestion that his loss was a “casualty" in any event. Assuming that that change of position is now open to him, it is of no assistance. What happened was not like a “fire, storm or shipwreck,” Sec. 23(e)(3), I.R.C. 1939. It did not embody the requisite element of “chance, accident or contingency.” Alice P. Bachofen von Echt, 21 B.T.A. 702, 709 (1930). The deduction was not permissible either as a theft or as a casualty. Weinmann v. United States, 278 F.2d 474 (C.A. 2, 1960). Petitioner’s loss, though unfortunate, “was no more than a personal expense to petitioner, for the deduction of which the statute makes no provision.” Thomas F. Gurry, 27 B.T.A. 1237, 1238 (1933). [36 T.C. at 1193.]

In light of Powers, and cases which have followed it,³ it is clear that if petitioner’s property was confiscated by the Communist government after the fall of Saigon, he would not be entitled to a casualty loss deduction under section 165(c)(3). However, based upon petitioner’s complete lack of knowledge, the wartime circumstances, and judicially noticed “stories with respect to the heavy damage to the city,” supra at 133, the majority infers that the property was most likely destroyed or criminally pilfered.⁴

Admittedly, if petitioner’s property were destroyed by ordnance or destroyed or pilfered before order was restored, he would be entitled to a casualty loss deduction. See Davis v. Commissioner, 34 T.C. 586 (1960) (vandalism). Unfortunately, under the circumstances, petitioner cannot prove the cause of his loss and for that reason, in my opinion, has failed to meet his burden of proof.

In Allen v. Commissioner, 16 T.C. 163 (1951), the taxpayer, Mary Allen, entered the Metropolitan Museum of Art in New York wearing a diamond brooch on the left side of her dress. Before leaving the museum less than 2 hours later, Mary discovered that her brooch was missing. After carefully retracing her steps, she was unable to find the brooch. Although she testified that she didn’t know whether the brooch was lost or stolen, she nevertheless argued that since the record showed that she was present only in well-lighted rooms that were so constructed that no article could have been lost, someone must have stolen her brooch and she was therefore entitled to a theft loss deduction. The trial judge felt this evidence was sufficient to substantiate her claim of a theft loss. Allen v. Commissioner, 16 T.C. at 167 (Judge Opper dissenting). However, in rejecting her claim, we stated:

She does not, and cannot, prove that the pin was stolen. All we know is that the brooch disappeared and was never found by, or returned to, petitioner.

Petitioner has the burden of proof. This includes presentation of proof which, absent positive proof, reasonably leads us to conclude that the article was stolen. If the reasonable inferences from the evidence point to theft, the proponent is entitled to prevail. If the contrary be true and reasonable inferences point to another conclusion, the proponent must fail. If the evidence is in equipoise preponderating neither to the one nor the other conclusion, petitioner has not carried her burden. [16 T.C. at 166; emphasis added.]

In the present case, the record does not show whether petitioner’s property was abandoned by him, confiscated by the North Vietnamese Government, pilfered, or destroyed. In my opinion, any of the above are reasonable inferences. That being so, based on Allen, I would hold that petitioner has not met his burden of proof by a preponderance of the evidence.

The majority would, however, relieve petitioner of his burden because his inability to determine what happened to his property was not his fault. This problem was addressed in Burnet v. Houston, 283 U.S. 223 (1931), wherein the taxpayer claimed it was impossible for him to prove his 1913 basis for stock which became worthless in 1920.⁵ The Supreme Court held:

We cannot agree that the impossibility of establishing a specific fact, made essential by the statute as a prerequisite to the allowance of a loss, justifies a decision for the taxpayer based upon a consideration only of the remaining factors which the statute contemplates. * * * The impossibility of proving a material fact upon which the right to relief depends, simply leaves the claimant upon whom the burden rests with an unenforcible claim, a misfortune to be borne by him, as it must be borne in other cases, as the result of a failure of proof. [283 U.S. at 228.]

Finally, I think it important to note that in the past, Congress has enacted special legislation to deal with cases similar to that of petitioner. For example, section 165(i) (repealed 1976) allowed a deduction for losses sustained when a Communist regime came to power in Cuba. In the absence of such legislation, on these facts, I think respondent should prevail. See Farcasanu v. Commissioner, 50 T.C. at 890.

Tannenwald, Simpson, and Nims, JJ., agree with this dissenting opinion.

1 In addition, I cannot understand why respondent’s argument that petitioner abandoned his property is an implicit concession that the loss occurred when Saigon fell rather than a few days earlier when petitioner left the city.

2 For this reason, the cases cited by the majority as supporting its position are in fact of little help. Goldner v. Commissioner, 27 T.C, 465, 462 (1956), clearly involved a loss incurred in a transaction entered into for profit. In Solt v. Commissioner, 19 T.C. 183, 186, 187 (1952), the exact paragraph of sec. 23(e), I.R.C. 1939 (the predecessor to sec. 165(c)), is not specified. Thus, there is no basis for concluding that a nonbusiness loss was allowed. The findings of fact in Solt state: “Although petitioner does not appear to have received much, if anything, in the way of profit from the farm prior to confiscation, he nevertheless held his interest as an investment and for the production of income.” (19 T.C. at 185; emphasis added.)

3 Farcasanu v. Commissioner, 436 F.2d 146 (D.C. Cir. 1970), affg. 50 T.C. 881 (1968). See Billman v. Commissioner, 73 T.C. 139 (1979).

4 The majority gratuitously concludes that the property may have been pilfered with criminal intent — a requisite to proving a theft loss under sec. 165(c)(3). In view of its specific reliance on the “other casualty” language of see. 165(c)(3), I fail to see the relevance of this speculation.

5 See sec. 202(a)(1), Revenue Act of 1918, ch. 18, 40 Stat. 1057, 1060.