730 F.2d 375
84-1 USTC P 9420
William C. DOSHER, et al., Plaintiffs-Appellants,
UNITED STATES of America (Internal Revenue Service),
United States Court of Appeals,
April 23, 1984.
Beard & Kultgen, Waco, Tex., Pat Beard, Waco, Tex., for plaintiffs-appellants.
Hugh P. Shovlin, Asst. U.S. Atty., San Antonio, Tex., Glenn L. Archer, Jr., Asst. Atty. Gen., Tax Div., D. of J., Michael L. Paup, Chief, Appellate Sect., Washington, D.C., for defendant-appellee.
Appeal from the United States District Court for the Western District of Texas.
Before GEE, POLITZ and JOHNSON, Circuit Judges.
POLITZ, Circuit Judge:
This appeal poses the question whether a taxpayer may deduct as a casualty loss money paid to compensate another for damage to property caused by the taxpayer's negligence. The district court, 573 F.Supp. 99, rejected the arguments of the taxpayer. We affirm.
Laurine L. Dosher accidentally drove her automobile into the home of the H.S. Bennetts of Waco, Texas, causing $22,000 damage to the house and its contents. The Dosher liability insurer paid its policy limits of $10,000 and Laurine Dosher and her husband William C. Dosher paid the $12,000 balance. The Doshers claimed a casualty loss of $11,900 (the $12,000 less $100) under Sec. 165 of the Internal Revenue Code, 26 U.S.C. Sec. 165. The Commissioner of Internal Revenue denied the deduction and assessed additional taxes which the Doshers paid. After a refund was denied the Doshers sought relief from the district court claiming that they had sustained a loss of property when they paid the Bennetts for the damages resulting from the vehicle/house collision. The district court concluded that Sec. 165 applied only to losses resulting from damage to a taxpayer's own property and did not extend to money the taxpayer paid to reimburse a third person for damage to that person's property.
In the tax arena, deductions are neither matters of right nor equity. They are exclusively items of legislative grace. Deductions in the code are not found by weighing or balancing equities; they are discovered by a parsing of the legislative language, and, in the case of an ambiguity, a review of the legislative history. Deductions are narrowly construed and the taxpayer bears the burden of proving entitlement. Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 94 S.Ct. 2129, 40 L.Ed.2d 717 (1974); Lettie Page Whitehead Foundation, Inc. v. United States, 606 F.2d 534, 539 (5th Cir.1979) ("deductions are strictly controlled by the code and equity cannot create a deduction").
The section applicable to our instant inquiry, Sec. 165, provides in pertinent part:
(a) General Rule.--There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
(b) Amount of Deduction.--For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
(c) Limitation on Losses of Individuals.--In the case of an individual, the deduction under subsection (a) shall be limited to--
(1) 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. A loss described in this paragraph shall be allowed only to the extent that the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100. * * *
It is apparent that the Doshers' loss neither arose in the course of a trade or business nor in a transaction entered into for profit. The Doshers must look to Sec. 165(c)(3) for their deduction.
We perceive the words "losses of property" to be words of limitation. Section 165(c)(1) and (c)(2) speak of any loss; only (c)(3) speaks of losses of property. We find this language expressive of congressional intent to narrow the types of losses deductible under this subsection. We conclude, as did our colleagues in the Ninth Circuit in Pulvers v. I.R.S., 407 F.2d 838 (9th Cir.1969), that the loss must be a damage or loss to physical property. We are persuaded that "property" as used in Sec. 165(c)(3) includes money only if the actual currency or coinage is physically damaged or destroyed by the enumerated or implied casualties. Money paid to another by virtue of a tort claim or judgment perhaps ought to be a permitted, deductible casualty loss. That matter, however, must be addressed to the only body which can create such a deduction, the Congress.
Our holding today is in accord with all previous cases which have considered the issue. See e.g., Tarsey v. Commissioner, 56 T.C. 553 (1971); Broido v. Commissioner, 36 T.C. 786 (1961); Stern v. Carey, 119 F.Supp. 488 (N.D.Ohio 1953); Dickason v. Commissioner, 20 B.T.A. 496 (1930); Mulholland v. Commissioner, 16 B.T.A. 1331 (1929); Peyton v. Commissioner, 10 B.T.A. 1129 (1928). Heretofore, no deduction has been allowed for the payment of money merely because that payment arose out of events associated with a casualty. See West v. United States, 163 F.Supp. 739 (E.D.Pa.1958), aff'd 259 F.2d 704 (3d Cir.1958); Bartlett v. United States, 397 F.Supp. 216 (Md.1975); Hall v. Commissioner, Tax Ct.Mem.Dec. (P-H) para. 80,485 (1980); Lowell v. Commissioner, 36 T.C.M. (P-H) para. 67,070 (1967); Orr v. Commissioner, 29 T.C.M. (P-H) para. 60,147 (1960).