*1 jurisdiction confers Georgia statute if cause of action HILLS, any over nonresident Henry L. and Frances O. any following: arises from Respondents, (a) business with- The transaction State; or COMMISSIONER OF INTERNAL (b) The commission of a tortious act or REVENUE, Petitioner. State; omission within this or No. 81-7668. (c) injury of a tortious commission an act or omis- State caused of Appeals, United States Court State; sion outside the Eleventh Circuit. owns, (d) person possesses If the uses or 15, 1982. Nov. within the any real situated property State. Rehearing Rehearing En Banc allegedly Defendant’s tortious conduct 17, 1983. Denied Jan. place injury took and the said California occurred have resulted from this conduct own, in Tennessee. Defendant does not use possess any Georgia, real so (b), (c) (d) Ann.
subsections Ga.Code applicable. 24-113.1 are not
§ that,
Plaintiffs contend because the de-
fendant transacted substantial business Georgia, jurisdictional
within the State
“contact” exists between the nonresident State, per-
defendant and the and therefore jurisdiction
sonal exists under Ga.Code Ann. 24-113.1(a). court, on Whitaker v. relying
The district Inc., Alabama, Ga.App.
Krestmark of held that Ga. S.E.2d 24-113.1(a) applies only
Code Ann.
claims based on contract and not those
sounding in tort. all the claims in Since torts,
this case were based on law that the Georgia long-
district court found inapplicable. agree
arm statute was We analysis Georgia
with the court’s district Furthermore, even if 24-
case law. Section conduct,
113.1(a) applied to tortious apply
would not in this case because the their cause
plaintiffs alleged have not
of action arose from the transaction of busi- Georgia.
ness in
AFFIRMED. *2 HATCHETT, HILL and
Before Circuit *, Judges, and GOLDBERG Senior Circuit Judge.
GOLDBERG, Judge: Circuit 165 of the Internal Revenue Section Code allows, rule, as a general of 1954 deductions ... in- compensated for “losses appeal or otherwise.”1 In this surance presented question with a of first im- circuit; in this we are pression upon called voluntary to decide whether a election not to file an insurance claim for a theft loss deduction under precludes this section.
1. INTRODUCTION A. Facts Hills, Henry taxpayer-appel- and Frances lees, Dahlonega, own a vacation home near 1, 1976, Georgia. April About a thief dis- of their secluded re- turbed solitude treat, causing Though a loss of $760. insured, taxpayers loss was chose not to Murray, Atty. Gen., John F. Acting Asst. Instead, policy.2 file a claim Chief, Section, Michael L. Paup, Appellate taxpayers claimed loss deduc- Robert Duffy, T. William Wang, Attys., P. tion on their 1976 federal income tax re- Section, Appellate Justice, Dept, turn.3 Washington, D.C., petitioner. Hicks, Maloof Campbell, & Bruce M. Decision Be- History B. Procedural Edenfield, Atlanta, Ga., respondents. low taxpayers’ return was audited and a Notice
the Commissioner issued
of Defi-
*
Irving
only
Goldberg,
graph
Honorable
L.
to the extent
U.S. Circuit
shall be allowed
Judge
Circuit, sitting by designa-
for the Fifth
that the amount of loss to such individual
casualty,
tion.
arising
or from each
from each
*
* *
theft,
$100.
exceeds
(26 U.S.C.):
Internal Revenue Code of 1954
SEC. 165. LOSSES.
reader,
idly
2. For the
curious
(a) General Rule. —There shall be allowed
apparently
pursue a claim because:
declined to
any
during
aas
deduction
loss sustained
(1) they
previously
three
theft
had
filed
other
year
compensated
taxable
and not
claims and feared a fourth would result
can-
insurance or otherwise.
policy; (2)
also
cellation of the
the same
protection;
(3)
included their fire
because of
(c) Limitation on Losses of Individual. —In
country
to the near-
the distance of their
home
individual,
the case of an
the deduction under
station,
difficult if not im-
est fire
would be
(a)
subsection
shall be limited to—
coverage.
possible
get
These
other
fire
business;
(1) losses incurred in a trade or
facts,
interest,
though
pertinent
are not
(2)
losses incurred in
transaction en-
holding.
our
profit, though
tered into for
not connected
business;
with a trade or
$660
3. The claimed deduction was for
rather
losses of
not connected
$760,
165(c)(3) allows deduc-
because
business,
trade or
if such losses arise from
they
only
exceed
tion for
to the extent
losses
fire, storm,
casualty,
shipwreck, or other
$100.
para-
from theft. A loss
in this
described
now
one
determine
ciency.
taxpayers,
aggressively
analysis:
must first
if there
loss,
then
prevent
economic
has been a
consider
trying
appealed
the loss
been
the Tax Court. This was also a case of first whether
or otherwise.8 The Commissioner
full Tax
In a
impression for the
Court.4
deny
view that the
fine,
does
Tax Court’s
thoughtful
opinion
reviewed
detriment here was not
court,5
compen-
economic
diverged
prior
full
Judge Nims
*3
otherwise;
rather,
by
sated
insurance or
he
judicial
treatment
the
allowed
deduc-
that these
do not meet the first
claims
facts
exist-
tion.6
Tax Court assumed the
requirement of a loss.
statutory
dealt primarily
ence of a loss and
compensated
whether the loss was
insur-
by
argu-
advances
The Commissioner
three
meaning
ance or
within the
of
otherwise
position
for the
that
the taxpayers
ments
165(a).
on
Relying
section
the clear statu-
First,
a deductible loss.
he
not suffer
did
legislative
tory language and limited
histo-
165(a) requires
that
a tax-
argues
section
ry,
taxpayers’
the court held the
loss was
possibilities
all reasonable
payer
compensated.
not
The court
further held
an economic
recompense
of
before
detri-
by
taxpay-
that
this loss
not caused
the
considered a loss. Because
ment is
the tax-
claim,
election
file an
ers’
not to
insurance
claim,
not
insurance
they
did
file an
payers
by
and so was not
the limitations
precluded
Second,
undergo
not
a loss.
he revives
did
on deductions
personal, nonprofit-seek-
for
rejected
by the Tax
the
Court
We
ing
165(c).7
losses contained in section
by
taxpayers’
this loss was caused
affirm.
claim,
and so
election not
file a
is not a
165(c)
of
personal
loss
the sort
Arguments
Appeal
on
C.
Finally,
deductible.
makes
Commis-
appeal
strongly
the economic
argues
On
the Commissioner
sioner
detriment
calls
was in
urges
two-part
by
that section 165
for a
suffered
substance
Commissioner,
case,
1968). Subsequent
4.
In an
Axelrod v.
courts have followed
earlier
(1971),
majority
56
248
the Tax
T.C.
consider
what we
view of Ken
undesirable
unnecessary
pass
See,
found
the de-
tucky
Towing
Court
ductibility
on
e.g., Waxier
v.
Utilities.
Co.
uncompensated
insured losses.
States,
(W.D.Tenn.
F.Supp. 297
United
510
however,
judges concurring separately,
Two
1980);
v.
Bartlett
United
397
Judge Quealy
did reach the
issue.
would
Commissioner,
(D.Md.1975); Morgan
37
216
grounds.
have allowed
First,
a deduction on
such
two
(CCH)
(1978) (following Kentucky
524
T.C.M.
claim,
by failing
file
rule,
under the
Golsen v. Com
Utilities
Golsen
‘not
“had no
1965 which was
aff'd,
missioner,
445
54 T.C.
757
compensated’
good’ by
or ‘made
insurance
denied,
(10th Cir.),
404
985
cert.
F.2d
meaning
within
statute and [the
(1971)).
30
254
See also
L.Ed.2d
regulations.”
261
Id. at
Commissioner’s]
Comment,
v. United States: De
Bartlett
Case
J.,
Second,
(Quealy,
concurring).
“[a]ny loss
Compensat
Losses not
duction Nonbusiness
by
petitioner
his
sustained
resulted from
Separate
for a
Insurance —The Need
ed
compensation
election not
than
to claim
rather
Individuals,
Mary
18 Wm.
Standard for
&
being compensated
from the
loss not
Commissioner,
(1976). In Miller v.
L.Rev. 200
J.,
(Quealy,
Id. at 263
con-
insurance.”
(CCH)
(1980) the Tax Court
41 T.C.M.
528
curring).
Judge Fay
would have allowed
Kentucky Utilities under the Golsen
followed
rule,
taxpayer has,
valid
deduction “where the
light
opinion in
but then withdrew its
reasons,
practical
relinquished
rights to
(CCH)
(1981).
665
Hills below.
T.C.M.
compa-
claim
from the insurance
Circuit,
appealed
been
to the
That has
Sixth
circumstances,
ny,” because
these
“[u]nder
(6th
1981).
disa
81-1717
Cir. Nov.
We
No.
gree
practical purposes
such an
is for all
individual
interpreta
subsequent
insurance,”
courts’
with these
without
See infra
III.B.
Utilities.
Part
tion
Reported
(1981).
at
insurance.”
It
is sufficient
out
plain meaning
has a
II.
that “covered” also
“COMPENSATED”
DOES
NOT
“compensat-
that of
MEAN
rather different from
“COVERED”
ed,”
must enforce the
and that
this Court
165(a) allows a
for any
Section
deduction
actually enacted.
If
statute
“loss
insurance
compensated
...
response,
were not sufficient
small
plain language
or otherwise.” The
on this sec-
fragment
legislative history
presents
two-part
inquiry:
statute
surely
dispositive.12
tion
The initial
loss?; (2)
Was there
Was it
Means
lan-
Ways
House
Committee
Although
otherwise?
*4
by
“losses ... not covered
insur-
guage was
rely
any
does not now
on
Commissioner
compensated
or otherwise and
for.”
ance
gloss
“compensated,”
strained
on
we con-
amended
Finance Committee
Senate
First,
sider that now
two reasons.
its final and
form
language
enacted
understanding
history
and
meaning
compensated
by
of “losses ... not
in-
165(a)
the compensation half of section
is
change
surance or otherwise.”13 This
necessary to understand the loss half.
the fact
that
makes clear
Second,
prior
some courts
to the Tax Court
difference between “covered”
aware
below have relied on an
view of the
unusual
to enact
“compensated”
and
and intended
word.9
it in fact enacted.
what
“Compensated”
respectable,
is a
everyday English
respectable,
word with a
III. AN UNCOMPENSATED LOSS IS
cir
everyday meaning. Absent unusual
A
STILL
LOSS
by
plain
cumstances we are bound
Completed
and
Transac-
A. The Closed
meaning
language Congress
has ena
Impose
Does Not
tion Doctrine
“Compensated”
quite
cted.10
here seems
Compensation
to Pursue
Duty
everyday meaning
being
able to take its
Indeed,
165(a)
allows a deduction
reimbursed.
Commissioner’s
Section
(1)
and
regulations support and endorse this com
an economic detriment
compensated
is not
mon-sense construction.11
See,
Anderson,
e.g.,
adjusted
...
Broderick v.
“insurance
9.
23
lowed should
488,
(S.D.N.Y.1938) (“No
giv-
received”).
492
force can be
plaintiffs
en to
claim that ‘not
does not mean ‘not covered
in-
insurance’
language
originally
of this section was
12. The
meaningless.”).
It
it is
surance.’
means that or
of 1894.
in
28 of the Revenue Act
§
enacted
349,
509,
227,
28
553. This
Pub.L. No.
ch.
Stat.
Illinois,
See, e.g., City
of Milwaukee v.
10.
451
Pol-
particular
held unconstitutional
act was
304,
1784, 1791,
U.S.
101 S.Ct.
tained when embezzlement takes
be-
recovery
principals
in the loss
possible
cause
whose funds have been embez-
“[o]ne
phase15
possible recovery
from unrelat-
may pursue
wrongdoer
zled
and recover
*5
parties
compensation phase
ed third
property wholly
part.”
or in
Id. at 170
statutory language.
is also mandated
the
added).
(emphasis
Treas.Reg.
See also
compensated
It refers to “losses ...
1.165-l(d) (timing of
depends
deduction
§
Thus a potential
insurance or otherwise.”
completed
on evidence of “closed and
trans-
action;”
recovery
indemnificator must
no
sustained while “there ex-
compensation
the
part
be treated as
of
respect
ists a claim for reimbursement with
prospect
phase.16 Accordingly,
to which there is a reasonable
the Commissioner’s
recovery”).14
passing
timing requirement
We note in
that
that the
argument
a
authority the Commissioner cites all relates
completed
imposes
closed and
transaction
a
timing
a
to
loss deduction.
a
is
duty
prevent
to
because we are now concerned
misdirected
problem
with this
lies in
half of the transac-
with the
two-part
nature of the transaction.
attempt
does not
tion.
Commissioner
Congress has divided
into
the transaction
extrapolate
duty
pursue compensa-
just
compensation,
“compen-
loss and
as
tion;
to do so would
to run afoul of the
meaning,
sation” has a clear
“loss” also has
discussed in Part
statutory language
clear
meaning
a clear
different
from that
II,
proposes.
plain
supra.17
It is
that if a
Commissioner
14. The Commissioner also cites as related au
unrelated, third-par-
party
is an
tion or when
ty
thority
entity
requirement
in this
under
166 that a
indemnificator. The relevant
§
reasonably pursue
clearly
creditor
a debtor before a
in the second
case is an insurer and
See, e.g.,
addressing
Presumably
debt
is
as a bad debt.
category.
deductible
a court
Southwestern Life Ins.
v. United
scope
Co.
precise
otherwise”
of “insurance or
(5th
1977),
560 F.2d
643-44
Cir.
cert. de
ejusdem generis
apply
would
the doctrines of
nied,
435 U.S.
16. We need not embezzle before loss from embezzler’s checks great determine in detail now sustained). party principal ment is when a to the loss transac-
Moreover, etymolog. “compensated” Commissioner’s definition iand “covered” of loss renders second and conclude that there is not a scent of compen- “and two, symbiosis between the no similarities surplusage. sated” clause According to the except or similitude for a vowel here Commissioner, to the extent there even a syllable consonant there. There is not possibility reasonable compensation, justifies even a legislative history Thus, there is no loss. an economic detri- vague using inference that the that was in fact compensated is cer- ment “compensated” word intended to use tainly not a loss. That would mean that “covered,” plain, word while the unvar- definitionally all deductible losses are not nished truth the enactment carries compensated, so Congress energy wasted convincing words that the deduction is by limiting ink deductions losses not predicated upon taxpay- not the whether or compensated for by insurance or otherwise. er for the loss. We are loathe to ascribe such foolishness to Congress, particularly when a common- interpretation sense plain based on the AB. Two-Part Transaction View of meaning of the words would avoid the in- Kentucky Utilities sult.18 Kentucky Glenn, Utilities Co. di- Although the Commissioner does not 1968), F.2d 631 one view of the
rectly argue
“compensated”
should
is that an
bottom line
economic detriment
take its
meaning,
urged
natural
we are
taxpayer,
suffered
which is covered
though
Code as
read section 165 of the
compensated by
but not
insur-
simple, uncomplicated words are either ab-
ance, is not a serious
165 loss.19 The Tax
struse or arcane. We have
followed
felt
Court below
that due to the factual
philological arguments
tarrying
here and
complexity
this sim-
there
for a minute
plistic,
inadequate
examination
bottom-line view was an
support
claim,
18. In
of the Commissioner’s definition
abandoned the
such as the execution
Treas.Reg.
1.165-l(d),
he cites to
of a release.
dealing
timing
Though
(ii)
year
of the deduction.
If in
other
reject
position,
regu-
portion
this section of the
*6
event a
of the loss is not covered
lations raises the issue of when it
respect
is clear a loss
claim for reimbursement with
compensated.
1(d)(2) pro-
is not
prospect
Sec.
there is a reasonable
of re-
which
1.165—
vides:
covery,
portion
then such
of the loss is sus-
year
during
tained
the taxable
in which the
(2)(i)
If a
or other event occurs
* * *
casualty or other event occurs.
may
and,
year
which
result in a loss
of
(iii)
If
in
the
deducted a loss
ac-
event,
such
or
there exists a claim
provisions
para-
of
cordance with the
this
respect
for reimbursement with
to which
year
graph
subsequent
in
taxable
re-
prospect
recovery,
there is a reasonable
of
no
portion
ceives reimbursement for such
he does
respect
of the loss with
to which
recompute
year
sustained,
may
not
the tax for the taxable
in
reimbursement
be received is
purposes
which the deduction was taken but includes
of section
until it can be
certainty
of
in his
the amount
gross
such reimbursement
ascertained with reasonable
wheth-
year
er
income for the taxable
in which
or not such reimbursement
re-
will be
received, subject
provisions
prospect
ceived.
recovery
to the
of section
Whether
reasonable
of
III,
relating
recovery
previous-
respect
exists with
of amounts
to a claim for
ly
question
reimbursement of a loss is a
of fact
deducted.
upon
regulations
to be determined
an examination of all
It would seem that under these
facts and circumstances. Whether or not
what the Hills have done is to abandon their
may
against
such reimbursement will be received
their
claim for reimbursement
insurer.
certainty,
objected
ascertained with reasonable
for ex-
The
has not
to the ab-
Commissioner
claim,
ample, by
“objective
a settlement of the
an
sence of
ment,
evidence” of the abandon-
claim,
adjudication
an abandon-
Presuma-
such as a release or affidavit.
ment of the claim. When a
bly
claims
subsequently
if the Hills
recovered under
year
insurance,
the taxable
in which a
sus-
l(d)(iii)
govern
loss is
would
§ 1.165—
tained is fixed
his abandonment of the
the reimbursement.
reimbursement,
claim for
he must be able to
produce objective
having
supra
evidence of
19. See cases
cited
note 6.
In its
law the district
expression
holding.20
the
Of course the
conclusions of
court
by Kentucky
that,
is not bound
with the
Eleventh Circuit
first noted
in accord
closed
importance
the
of that
doctrine,
Utilities. Given
completed transaction
no
decisions, however,
subsequent
case
we
in
kind
in 1951.
was suffered
The
pause
agreement
our
with the
express
$10,000.00,
court then found that
in
Tax
the result
the instant
Court that
amount,
a loss “because
deductible
was
K-
with a two-part
case is not
inconsistent
against
was not in
Lloyds
dispute.
U’s claim
view of
Utilities.
transaction
$34,-
K-U is not entitled to a deduction
(“K-U”)
generator
had a
utility
sup-
486.67 as
loss not
plied Westinghouse, which
1951 was
predeces-
under
insurance or otherwise
[the
$147,537.60.
damaged
for a loss
West-
165(a)
at
sor of section
].”
inghouse investigated the accident and was
found that
Finally,
the district court
liable
that it was not
for the loss
convinced
necessary
not
business
ordinary
was
an
warranty.
K-U valued its busi-
expense.
Westinghouse
ness
and did
relations
sustained
district
Sixth Circuit
litiga-
not
them
jeopardize
through
want to
generator loss. First
regarding
court
$10,000.00
tion. K-U had
deductible insur-
findings
of fact
quoted
two
London,
Lloyds
ance coverage with
“This
quoted. Then it stated:
record
have
liability
which did not contest its
under the
Judge’s quot-
us
District
convinces
that the
However,
policy.
Lloyds insisted upon its
clearly
findings of fact are not
errone-
ed
right
subrogation
pur-
and would have
$10,000
K-U’s loss over and above
ous.
Westinghouse
paid
sued
had it
K-U
not
Judge was
allowed
the District
parties
claim.21
a set-
In 1953
reached
Wallingford
loss.’
P.
Grain
‘uninsured
Sam
divided;
in which the loss was
tlement
Revenue,
of Internal
Corp. Commissioner
$65,550.93,
paid
Lloyds paid
Westinghouse
1934).” Kentucky
1005 rather their insurance insur- Uncle Sam than paying exists between from ic difference Bartlett, and losses premiums paying casualty company.” supra, ance 397 they very as There is a pocket of arise. Indeed, out thing goes to a believe such 218. for situations strong argument taxing both instincts against carefully judicial all honed fact, same, are proposals and in such out tax motives. sniffing of avoidance See, U.S. General regularly e.g., made. However, that seems to be upon reflection Office, Casualty Personal Accounting has enacted. exactly Congress the scheme Analysis Loss Tax Theft Deduction: and taxpay- that the has never been doubted It (Pub. no. for Proposals Change pay nonde- er elect prospectively could for GGD-80-10); Treasury, Blueprints U.S. premiums or deductible insurance ductible 17, 1977), (Jan. reprinted Basic Tax Reform they as arise. casualty might losses J. Federal In- Kragen McNulty, in 1 A. & Congress’ the statute indicates language of Taxation, 1979).27 568-69 In (3rd ed. come election choice allow that free deliberate fact, Congress very itself been careful has suggests as casualty Nothing well. after medical parallel for treatment of provide election to taxpayer’s preliminary that a premiums.28 and medical insurance expenses policy out an insurance should be bind- take However, casualty case personal in the 30 Congress event has focused on ing; has out-of- Congress seen fit to treat losses to make is whether significant and chosen insurance differently losses pocket actually received. Congress for those Thus coverage losses. codal or discor- incongruity is no There reason, has, whatever chosen to focus on for finding a event where a in taxable dance payment rather than economic the form in the absence claims deduction ec- And so substance.29 the Commissioner’s could taken but did that which he have onomically correct observation effect, example, For a creditor who for- have, not take. paid premi- in insurance Hills import is of no more the debt of debtor vests income gives ums tax obser- complementary economically correct in the v. purposes debtor. Cf. U.S. for tax premiums that all insurance vation Co., 4, 76 Kirby Lumber nothing casualty more than losses. prepaid (1931). might Here insurance L.Ed. 131 the loss was have been collected because A latent somewhat covered; col- the fact it was not but in- “Congress is hard to believe the insurer increases income of lected 165(c)(3) option- to serve as tended] deduction on permits correlative coverage al insurance those who suffer fact, this raises damage taxpayer. but who choose to collect part pays casualty Fortunately necessary out of into when it 27. it is to wade otherwise base, account). fray concerning prop prepaid the tax whether conceived; erly should allow deductions Andrews, casualty Compare, e.g., Per losses. might making suggest such factor that 30. One Tax, 86 sonal Deductions in an Ideal Income binding important tax is if it had an election Kelman, (1972) with Harv.L.Rev. 331-333 part congressional consequences as They Why Fit Personal Deductions Revisited: area of medical That is the case in the scheme. Why They Poorly “Ideal" Tax and in an Income insurance, specific enacted where World, 31 Stan. Fit Worse a Far From Ideal providing parallel provisions treatment 859 n.87 L.Rev. supra In con- note 28. medical insurance. trast, no tax conse- 165 there are 105(a), 213(e)(1)(C); 213(a)(1), See I.R.C. §§ Congress’ quences from the election related Clark, The Federal Income Taxation of Finan- only tax conse- treatment of losses. The tax Intermediaries, Yale L.J. & cial insure, quence deduction from the election to (contrasting nn. treatment pur- profit-seeking premiums for business or expenses). treatment of losses with medical plan. congressional part poses, distinct way judgment one specifically disavow We Helvering, F.2d 709 29. Cf. Comar Oil Co. area, expense the other the medical 1939) (taxpayer self-in- elaborate point that our out this factor mention scheme, including prepaid surance present unique holding factors is based accounting, does loss accounts its internal statutory scheme §of not have loss *9 what we Motivations, believe to be the actual economic reasons explanations substance and tax behind policy section 165. change verbiage cannot of the Code and From the perspective of this loss transac- regulations. The fact relevant tion, the insurance contract has trans- the decision in this case is whether or not formed the insurer and the insured into a who claims a taxpayer casualty loss was single economic unit. The net worth of this compensated for his loss. There is no hint economic unit has been decreased by the in the statute or the regarding Code amount of the so somewhere in this function purposes of motivations and in not unit the system tax should allow a deduc- taking insurance compensation. tion. The Commissioner would not allow only words in the statute speak either the insurer or the insured to take the deductibility inquire whether or not the loss deduction; policy. senseless On compensated. has been The answer to this view, our if the insured is not compensated, inquiry taxpayer is that this was not com- gets deduction; the insured if the insur- pensated. The looks simply Code to wheth- insured, er compensated the the insurer er he received or did not compensa- receive gets the Symmetry preserved deduction. tion for his loss. and the Commissioner collects the revenue to which he is entitled.31 point we wish Congress juncture atmay want to do to make is that this election is not an illogi- investigation legislation further cal or an alien concept for the Internal subject, up until the very but date of this Revenue Code. opinion, the Code stands as it reads. “Per- CONCLUSION haps the we possess today wisdom would The historicity of the Code sections under job enable us to do a better lawmaking] [of gives review some indication that Congress than Congress [1894], did in but even if that was concerned with whether or not mere true, be authority we have no to substitute coverage, though uncollected, justify could expressed our views for those by Congress denying a deduction for a casualty loss. duly in a enacted statute.”32 In section 165 in its collective wisdom deter- Congress duly enacted a straightfor- mined that the deduction would be ward determining method of whether losses premised upon whether or not the loss was are deductible. Whether or not that stat- compensated. ute implements the tax this Court or “Compensated” is a word distinct from the prefer Commissioner would irrele- “covered.” We do not read the Code as vant. It is nor duty prerog- neither our our permitting taxpayer paper over his ative to make that which was not compen- loss. The speak Code does not in terms of a compensation by any legal leger- sated into right compensation, speaks with a clar- demain. sound, ion with decibels not minimized aby AFFIRMED. mute, sordino, not stifled by a that in order for the deduction to viable, become the loss must not compensated. It does not refer HATCHETT, Judge, dissenting: Circuit right to the to compensation or the failure I dissent I because do not believe: “The right. exercise the It simply says that simply taxpayer] Code looks to whether [the shall deduct if he has a loss received or did not receive
for which he was not compensated. “Com-
precedent
his loss.” Without
cir-
pensation”
receipt
connotes
and “not com-
cuit, without
of tax policy
consideration
pensated” means not received. Section 165
life,
practicalities
of real
read in
and in total
text and in context cannot mean
disregard
applicable
treasury regula-
who could have collected
not,
but did
tion,
is not entitled to the deduction.
majority
reaches the conclusion
Comment,
supra
31. See
Corp. Higginbotham,
Case
note
Mobil Oil
436 U.S.
618, 625,
n.54.
L.Ed.2d
*10
whether or not such reim-
certainty
receive it—-he didn’t re-
ble
that “if he didn’t
did
bursement will be received.
ceive it.” The fact that
willing
reimbursement
from a
not seek
given
which must be
cre-
regulation,
majority’s analy-
source is irrelevant in the
court, points out that no loss
dence
sis.
sustained,
purposes
165(a),
is
of section
“claim
(26 if there exists a
for reimbursement
regulation,
1.165-1
there is a reasonable
C.F.R.)
respect
with
which
provides:
prospect
recovery.”
taxpayers
Since
1.165-1 Losses.
claim for reim-
ripe
good
here had a
bursement,
have been
deduction should
no
(d) Year of deduction.
because no loss was sustained. A
allowed
(2)(i)
other event oc-
If a
or
does not
casualty simply
theft or
become a
and,
may
in a loss
curs which
result
for recov-
prospects
loss until all reasonable
event,
year
of such
there ex-
ery have been exhausted. The distinction
with re-
ists a claim for reimbursement
an event and a loss has been amply
between
spect
pros-
to which there is
reasonable
explained in Alison
United
pect
recovery,
portion
no
of the loss
ing
such as the exe-
results from an embezzlement
abandoned
one to be decided
question,
practical
cution of a release.
according
surrounding
circumstances.
Commissioner,
Boehm v.
There
*11
part
that I dissent than that stated above. The
read:
inconsistency
now creates
majority opinion
(f)
by corporations.
Losses
in-
corporations,
within section 165 between
á
losses
corporation,
“In the case of
business,”
a
in a “trade or
or
dividuals
year and not
during the taxable
sustained
venture,
making
and
“profit”
non-business
other-
insurance or
position in
individuals. The commissioner’s
wise.”
expressed through
regula-
as
this case
23(f) (1952) (Internal
26
Reve-
U.S.C.A. §
tion, provides
pur-
that all
must
1939).
23(f), only
nue
Under §
Code
readily
majori-
sue
available remedies. The
corporations
participate
were allowed
ty’s position,
requiring taxpayers
in not
Whereas, un-
of this section.
benefits
remedies,
giving corpora-
results in
(c)(3), three classes of tax-
165(a)
der
and
§
or
and
in a “trade
busi-
tions
individuals
the benefits accorded
payers are allowed
venture,
ness,”
making
a dou-
“profit”
(2)
(1)
corporate taxpayer;
this section:
ble bite under the tax laws.
business
engaged
in a
taxpayer
the individual
who
premium and
entity deducts the insurance
“profit” making
or a
“trade or business”
may
individual
the theft. A non-business
venture;
(3)
taxpayer.
and
the non-business
the theft.
only deduct
important
because
These distinctions
result as to
may
this
be desirable
While
treatment
requires
each
different
taxpayer,
an
non-business
individual
policy
tax
economic and
consistent with
result where
should
desirable
per-
Given this
considerations of
Code.
or an
corporation
individual
different,
a more
or at
least
spective, a
engaged
“prof-
in a “trade or business” or a
as
to non-
holding
applying
restrictive
sense,
making
it”
venture.
In this
the ma-
would have
better
individuals
been
business
practical
and
jority fails to consider
majority.
than that rendered
Such
consequences of its decision.
economic
accomplish
objectives:
two
holding would
regarding
for all
basis
decisions
Ken-
consistent with
(1) it would remain
is,
165(a)
interpretation of section
as men-
Utilities,
(2) it would remain
tucky
and
Kentucky
majority opinion,
tioned in the
realities of the
with the economic
consistent
Glenn,
(6th
Utilities v.
J. Bartlett United en- Code, corporations and individuals 1939 (Md.1975). on these 397 216 Based “profit” or a “trade or business” gaged in a decisions, pro- the Internal Revenue Service venture, deductions for are allowed making 78-141, Ruling 1978-1 mulgated Revenue premiums as an ordi- of insurance payment 8102010, Ruling and Letter all hold- C.B. 58 expense. business nary necessary and ing right where a to an insurance claim 23(a) (1954) and I.R.C. § I.R.C. 162 exercised, is not the deduction under Co., Paper v. Weber (1939); States United 165(a) The Commissioner may be denied. 1963); Bennett v. (8th F.2d 199 Cir. 320 position here. Because advances same Revenue, 139 of Internal Commissioner importance placed great precedential Car- (8th 1944); generally, see 961 Cir. F.2d on it deserves close Rev- of Internal v. Commissioner nation Co. notwithstanding age. scrutiny, 1981) enue, (9th Cir. 1012 640 F.2d are de- premiums “[ijnsurance (stating must be considered Kentucky Utilities necessary business ‘ordinary (1) Kentucky ductible as points: light of two crucial were al- Code; ”). No such deductions expenses.’ the 1939 Utilities was decided under Code, as under the the 1939 lowed (2) in that case was the insured Code, premiums present 1954 Kentucky Utilities case corporation. The individual. See paid the non-business governed 23(f) of the Inter- by section
1009
24(a)(1)
produce
which would not
an absurd result.
1.R.C.
I.R.C. §
70-394,
(1939);
Ruling
1970-
Alabama ex rel.
v. Ten
Revenue
C.B.
State of
Graddick
Auth.,
(5th
(1976). Because this subsidization transfer, burden on
the cost these tax- than the burden
payers obviously less the non-business individual. borne America, UNITED STATES Plaintiff-Appellee, holding, was correct on the facts of perspective, that case because had the court allowed the BAILEY, Defendant-Appellant. Carl corporation, loss deduction to the it would No. 81-7610. (other effectively government have left the twice, taxpayers) pay the bill once for Appeals, Court United States deduction, premium again for the Eleventh Circuit. loss deduction. This is the situation 19, 1982. Nov. holding with majority advances intent, Congress’s this case. This was not Rehearing and on Denial of As Amended nor with the tax is it consistent nation’s Jan. Rehearing En Banc policy. problem with such a restrictive however,
interpretation, reconciling such holding the words of section 165. with
Thus, statutory in the interest of consisten-
cy, accepting the commissioner’s result
would not be consistent with a reason- Code, interpretation
able but also policy. this nation’s tax job interpreting statutes is to ef-
Our Congress.
fectuate the intent of This re-
quires give practical interpretation us to