Revenue Ruling 72-592

Section 165(c)(3) of the Internal Revenue Code (the Code) provided that in certain circumstances, taxpayers could deduct non-business-related property losses arising from “fire, storm, shipwreck or other casualty.” The Code did not define “other casualty,” and no legislative history existed to explain how Congress had intended to define the term. The Internal Revenue Service (IRS) had taken the position that (1) a casualty was a complete or partial destruction of property resulting from a sudden, unexpected, and unusual identifiable event, and (2) an “other casualty” for purposes of § 165(c)(3) was a casualty analogous to a fire, storm, or shipwreck. Courts considering § 165(c)(3) cases had typically applied the IRS’s position. However, in the 1967 case White v. Commissioner, the United States Tax Court allowed a taxpayer to claim a casualty-loss deduction for the irretrievable loss of a diamond from an engagement ring belonging to the taxpayer’s wife. The diamond was lost when it fell out of the ring after the taxpayer accidentally slammed a car door on his wife’s hand. The tax court’s decision in White stood for the proposition that property that is accidentally and irretrievably lost can be the basis for a casualty-loss deduction under § 165(c)(3) if the loss otherwise qualifies as a casualty loss (i.e., if the loss results from a sudden, unexpected, and unusual identifiable damaging event). Following the White decision, the IRS issued a revenue ruling regarding whether the accidental property loss qualifies for a casualty-loss deduction.