Rev. Rul. 72-592

In view of the decision of the Tax Court of the United States in John P. White v. Commissioner, 48 T.C. 430 (1967), reconsideration has been given to the meaning of the term "casualty" for purposes of section 165(c)(3) of the Internal Revenue Code of 1954. That section of the Code provides that an individual may deduct:

(3) losses of property not connected with a trade or business, if such losses arise from fire, storm, shipwreck or other casualty. . . . [but] only to the extent that the amount of loss to such individual arising from each casualty . . . exceeds $100. . . .

The provision allowing this deduction for losses from "other casualty" has been part of the Federal tax law since the enactment of the Revenue Act of 1916. However, there is neither statutory definition of the term "other casualty," nor legislative history expressing Congressional intent as to its meaning.

The courts have consistently upheld the Internal Revenue Service position that an "other casualty" is limited to casualties analogous to fire, storm, or shipwreck. The Service position has been that a casualty is the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected, and unusual nature.

In the White case, however, the Tax Court found that property that was accidentally and irretrievably lost could, under the circumstances described, be the basis for a casualty loss deduction under section 165(c)(3) of the Code. The Service has acquiesced in the decision of the Tax Court in the White case, C.B. 1969-1, 21.

In the White case, the taxpayer-husband accidentally slammed the car door on his wife's hand after helping her alight from the car. Her diamond engagement ring absorbed the full impact of the blow, which broke two flanges of the setting holding the diamond in place. His wife quickly withdrew her injured hand, shaking it vigorously, and the diamond dropped or flew out of the broken setting. The uninsured diamond was never found, and the taxpayer claimed a casualty loss deduction for its value in the year it was lost.

The Tax Court, convinced that the diamond was irrevocably and irretrievably lost, sustained the taxpayer's claim, indicating that the diamond was completely removed from the enjoyment of its owner and that it had no value to the owner after the loss. The Service, in acquiescing in the decision, agreed that property that is accidentally and irretrievably lost can be the basis for a casualty loss deduction under section 165(c)(3) of the Code if it otherwise qualifies as a casualty loss.

In other words, the Service position is altered only to the extent that the accidental loss of property can now qualify as a casualty. Such losses must, of course, qualify under the same rules as must any other casualty; namely, the loss must result from some event that is (1) identifiable, (2) damaging to property, and (3) sudden, unexpected, and unusual in nature. The meaning of the terms "sudden, unexpected, and unusual," as developed in court decisions, is set forth below.

To be "sudden" the event must be one that is swift and precipitous and not gradual or progressive.

To be "unexpected" the event must be one that is ordinarily unanticipated that occurs without the intent of the one who suffers the loss.

To be "unusual" the event must be one that is extraordinary and nonrecurring, one that does not commonly occur during the activity in which the taxpayer was engaged when the destruction or damage occurred, and one that does not commonly occur in the ordinary course of day-to-day living of the taxpayer.