Rev. Rul. 57-599

Advice has been requested whether, under section 165(c) of the Internal Revenue Code of 1954 or section 23(e)(3) of the Internal Revenue Code of 1939, an allowable deduction as a casualty loss arises when otherwise apparently healthy elm trees are lost either by the disease `phloem necrosis' or by an attack of insects.

In the instant case five trees leafted out in early spring in apparent good health and so continued until summer when the bark began to split open. Within a few days the trees died. The cause of death was attributed to the disease `phloem necrosis.' Four other trees, in healthy condition on July 1, were attacked by insects shortly thereafter and were dead by July 10, of the same year.

Section 165(c) of the 19-54 Code and section 23(e)(3) of the 1939 Code provides, in part, for a deduction from income of losses arising from fires, storms, shipwreck, or other casualty.

In the case of Ray Durden et al. v. Commissioner , 3 T.C. 1, acquiescence C.B. 1944, 8, the court held that the definition of `other casualty' excludes the progressive deterioration of property through a steadily operating cause. Also see, Hugh M. Matheson et al. v. Commissioner , 54 Fed.(2d) 537, Ct. D. 510, C.B. XI-2, 393 (1932) and Charles J. Fay v. Helvering , 120 Fed.(2d) 253.

Similarly, the court held in the case of Betty Rogers et al. v. Commissioner , 120 Fed.(2d) 244, that the word `casualty' denotes an accident, a mishap, or some sudden invasion by a hostile agency, and excludes the progressive deterioration of property through a steadily operating cause. Since damage by termites is not a sudden occurrence, but is a development over a longer period of time, the loss resulting therefrom is held not to be a casualty. Also, see Rev. Rul. 79, C.B. 1953-1, 41 and Harry Johnston Grant v. Commissioner , 30 B.T.A. 1028, acquiescence C.B. XIII-2, 8 (1924).

The very nature of the disease phloem necrosis indicates that the loss arises through a progressive deterioration rather than a sudden occurrence. `Necrosis' is defined in Webster's New International Dictionary (Second Edition), in part as follows:

2. * * * A localized or general death of plant tissue caused by low temperatures, fungi, etc. * * *.

The lack of suddenness is also present where the loss of trees is a result of insect infestation. While it may be true that the arrival of the insects is sudden the death of the tree is the result of progressive deterioration.

In view of the above, it is held that a loss arising from the death of trees as a result of disease or attack by insects does not constitute an allowable deduction as a casualty loss within the meaning of section 165(c) of the 1954 Code or section 23(e)(3) of the 1939 Code.