Rev. Rul. 54-581

Advice has been requested whether the over act of abandonment is always the identifiable event which establishes for a particular year an abandonment loss for the purposes of sections 23(e) and 23(f) the overt act of abandonment is 1939.

Section 23(e) of the Code provides that in computing net income a deduction under certain conditions is allowable to an individual for losses sustained in a taxable year and not compensated for by insurance or otherwise. Section 23(f) contains similar provisions relating to corporations. A deduction is allowable under the above sections for a loss in the year in which the loss is sustained. Section 39.23(e)-3 of Regulations 118 relates primarily to the requisites for the allowance of a loss from the abandonment of some or all of the assets used in a business when their usefulness is suddenly terminated. This section requires that the taxpayer shall have discontinued the business or discarded such assets permanently from use in order to claim an abandonment loss for the year in which he takes such action. However, under the statute the year in which a deduction for a loss is allowable is not necessarily the year in which an overt act of abandonment of the property or loss of title thereof occurred. In Alice V. Gordon v. Commissioner , 46 B.T.A. 1201, affirmed 134 Fed.(2d) 685, acquiescence C.B. 1951-1.2, it was stated `* * * the logic of the situation requires that if, in the case of either real or personal property, it can be shown that no value whatever remains, a deduction for loss may then be permitted even though a sale, abandonment, or other irrevocable loss of title is postponed to a later period.'

In accordance with section 39.43-2 of Regulations 118 a taxpayer has a right to deduct all authorized allowances, and it follows that if he does not within any year deduct certain of his expenses, losses, interest, taxes, or other charges, he cannot deduct them from the income of the next or any succeeding year. This section further provides that if subsequent to its occurrence, a taxpayer first ascertains the amount of a loss sustained during a prior taxable year which has not been deducted from gross income, he may render an amended return for such preceding taxable year including such amount of loss in the deductions from gross income and may file a claim for refund of the excess tax paid by reason of the failure to deduct such loss in the original return. Accordingly, if the loss in the value of property was sustained in a previous year, the taxpayer may not, by subsequent act of abandonment, establish a deductible loss for the year of such abandonment. The court stated in Superior Coal Co. v. Commissioner , Tax Court Memorandum Opinion entered November 13, 1943, affirmed 145 Fed.(2d) 597, certiorari denied 324 U.S. 864, `It is well settled that the retention of bare legal title to property does not prevent a taxpayer from taking a deduction in the year in which the property becomes worthless. * * * It is equally well settled that a taxpayer may not be permitted to postpone the taking of a deduction for a loss actually sustained until a year in which the deduction will result in a larger saving in tax.'

Accordingly, it is held that an abandonment loss is deductible only in the taxable year in which it is actually sustained. An abandonment loss which was actually sustained in a taxable year prior to the year in which the overt act of abandonment took place is not allowable as a deduction in the latter taxable year.