*49 Decision will be entered for the respondent.
Petitioner's business property was completely destroyed by fire December 11, 1946. His loss was not completely covered by insurance. Petitioner sought to deduct the portion of his loss not covered by insurance in the year 1947, claiming that due to an investigation as to the honesty of the fire he was in doubt as to the amount of his recovery of insurance payments until April 1947. Held, no reasonable grounds existed for doubt on the part of petitioner which would excuse his failure to take his loss in 1946, the year of the fire, and permit the taking of such loss in 1947, the year in which the insurance coverage was paid.
*156 The respondent determined a deficiency of $ 8,354.92 in the petitioner's income tax for 1947. The only issue for determination is whether the petitioner was entitled to a deduction for 1947 of $ 3,634.92 as a loss resulting from a fire which occurred in 1946.
FINDINGS OF FACT.
A portion of the facts have been stipulated and are found accordingly.
The petitioner is a resident of Chattanooga, Tennessee, and filed his income tax return for 1947, prepared from books kept on the cash basis, with the collector of internal revenue for the district of Tennessee.
During 1943 the petitioner purchased for $ 12,500 a 2-story building situated in Chattanooga. He thereafter made extensive improvements on the building and converted it to a nightclub. On December 11, 1946, the adjusted basis to petitioner of the building and its contents was $ 37,134.92. On the building and its contents the petitioner had fire insurance in the total amount of $ 33,500, under 7 policies issued as follows:
| National Fire and Marine Insurance Company | $ 2,000 |
| Jersey Insurance Company | 4,000 |
| American Indemnity Insurance Company | 2,000 |
| Concordia Insurance Company | 5,000 |
| Milwaukee Insurance and Liability Company | 4,000 |
| Milwaukee Insurance and Liability Company | 12,500 |
| Milwaukee Insurance and Liability Company | 4,000 |
| Total | $ 33,500 |
*51 *157 On December 11, 1946, a fire occurred in the building which resulted in the building and its contents' becoming a total loss. At the same time a church located directly back of the petitioner's building was burned, and it was never determined which of the buildings first caught fire.
On December 15 or 16, 1946, the petitioner, who was inexperienced in handling such matters, approached Ike Benkovitz about helping him to determine the amount of his loss, to file proof of loss with the insurance companies, and to collect on the policies of insurance. Benkovitz operated a store in Chattanooga in which he sold draperies, curtains, and other materials used for interior decorating purposes. From about 1912 until he entered the Army during the First World War he was employed by a fire insurance adjuster in Nashville, Tennessee. After the war he did such work for his own account. However, in 1946 he was doing such work only as a sideline and on a commission basis. Immediately upon being approached by petitioner, and before accepting employment by him, Benkovitz went to observe the scene of the fire. From what he observed he concluded that the building and its contents were*52 a total loss and that the petitioner should collect the full amount of the insurance policies thereon. Thereupon Benkovitz immediately agreed with petitioner to render him the assistance desired.
On some undisclosed date subsequent to the fire, the fire marshal of Chattanooga, the fire marshal of the county, and the National Board of Investigators began an investigation to determine whether arson had been committed. The petitioner was not accused by the insurance companies or by the fire marshals of arson and, so far as appears, he was not suspected of it. Nor, so far as shown, was any evidence of arson discovered.
After Benkovitz had agreed to help petitioner collect on his insurance policies, he contacted George Lee, an insurance adjuster for one or more of the companies which had issued policies to the petitioner. Lee told him of the investigation that was being made by the fire marshals and the National Board of Investigators but to go ahead with the employment by petitioner which he had accepted and to let the matter go along until the investigation had proceeded further. In view of what he had been told by Lee, and since he did not have time before the holidays to devote*53 to the matter, Benkovitz did not proceed immediately to prepare and submit proofs of loss to the insurance companies but "let the loss ride until after the holidays." Proofs of loss were not filed by petitioner with the various companies until sometime during the first part of February 1947.
*158 The insurance companies made payment to petitioner on the following indicated dates of the full amount of the policies they had issued to him:
| Amount | Date of payment | |
| Jersey Insurance Company | $ 4,000 | Feb. 20, 1947 |
| American Indemnity Insurance Company | 2,000 | Feb. 20, 1947 |
| National Fire and Marine Insurance Company | 2,000 | Feb. 22, 1947 |
| Concordia Insurance Company | 5,000 | Apr. 5, 1947 |
| Milwaukee Insurance and Liability Company | 4,000 | Apr. 5, 1947 |
| Milwaukee Insurance and Liability Company | 12,500 | Apr. 5, 1947 |
| Milwaukee Insurance and Liability Company | 4,000 | Apr. 5, 1947 |
In his income tax return for 1947 the petitioner took a deduction of $ 15,065.15 as a loss resulting from the fire that occurred on December 11, 1946. The respondent determined that the petitioner sustained no loss in 1947 on account of the fire and disallowed the deduction.
OPINION.
Although petitioner deducted*54 $ 15,065.15 in his return for 1947 as a loss resulting from the fire, he conceded at the hearing, and respondent agreed, that the loss not compensated for by insurance was $ 3,634.92. Allowance of the deduction taken is now sought by petitioner only to the extent of the latter amount.
The single question for determination is whether the petitioner's loss was sustained in 1947, as he contends, or in 1946 when the fire occurred, as respondent contends. The pertinent portion of the Internal Revenue Code of 1939 is set out below. 1
In support of his position that the loss in question was sustained in 1947, the petitioner contends that, because of the investigations by the fire marshals and an investigator *55 for the insurance companies to ascertain if arson had been committed in connection with the fire, he had a serious doubt as to whether he would be able to recover on the insurance policies, and that it was not until April 5, 1947, when all the policies had been paid in full, that he was able to determine what loss he had sustained. The respondent urges that the investigations made by the fire marshals and the investigator for the insurance companies afford no basis for concluding that in 1946 or afterwards there was a reasonable doubt that the petitioner would recover the full amount of the insurance policies. He further urges that since the petitioner's property was not insured for the full amount of its adjusted basis, and since the building and its contents were a total loss, the petitioner readily could have ascertained in 1946 that he had sustained a loss *159 as the result of the fire and also the amount of the loss and that, therefore, the loss was sustained in 1946 and should have been deducted by petitioner in his return for that year.
In considering the question of whether a loss was in fact sustained in a given year, the Supreme Court in ,*56 said:
Such an issue of necessity requires a practical approach, all pertinent facts and circumstances being open to inspection and consideration regardless of their objective or subjective nature. As this Court said in , "no definite legal test is provided by the statute for the determination of the year in which the loss is to be deducted. The general requirement that losses be deducted in the year in which they are sustained calls for a practical, not a legal, test."
The standard for determining the year for deduction of a loss is thus a flexible, practical one, varying according to the circumstances of each case. The taxpayer's attitude and conduct are not to be ignored, but to codify them as the decisive factor in every case, is to surround the clear language of § 23 (e) and the Treasury interpretations with an atmosphere of unreality and to impose grave obstacles to efficient tax administration.
Respecting the probability of his recovery in full on the insurance policies, the petitioner testified that from the time of the fire until some undisclosed time in January 1947, when he had been interviewed*57 by a fire marshal and by the investigator for the insurance companies, he had no doubt whatever but that he would recover the full amount of insurance under each of his policies; that after such interviews he was in doubt as to collecting on the policies, and that such doubt continued until an undisclosed date in February 1947 when he was requested to sign proofs of loss to be filed with the insurance companies; and that, after such request, he did not have any doubt as to full recovery on the policies. Since it does not appear that the investigations by the fire marshals and the investigator for the insurance companies disclosed any evidence of arson, and since the petitioner was not accused of arson and is not shown to have been suspected of it, we are unable to see why the fact that such investigations were made would create any doubt as to petitioner's recovery on the insurance policies. So far as disclosed, the investigations were of an ordinary and routine type made where buildings were destroyed by a fire which had no apparent origin.
Three of the insurers made full payment of their liability shortly after petitioner filed proofs of loss with them. Although payment of liability*58 by the other two insurers was not made so promptly after petitioner filed proofs of loss with them, yet, so far as appears, they made payment in full well within the time agreed upon therefor in the policies issued by them.
The situation here is unlike those presented in , affirming a Memorandum Opinion of this *160 Court, and , relied on by petitioner. In the Harwick case the taxpayer sustained a loss as a result of a shipwreck which occurred in 1943 and claimed the right to be compensated therefor by insurance. The insurers neither admitted nor settled their liability until 1944, when partial liability was agreed to and satisfied. It was held that 1944 was the year of the loss. Prior to 1944 the taxpayer did not know whether or to what extent he had a right to be compensated for the damage which had occurred. Until 1944 the existence of the loss was, as to him, still an open question. In the Allied Furriers Corporation case the taxpayer sustained a loss as a result of a burglary which occurred in 1924. The taxpayer*59 claimed the right to be compensated therefor by insurance, but the insurer denied liability. Thereupon the taxpayer brought suit against the insurer, which was decided adversely to the taxpayer in 1928. There, we held that 1928 was the year of the loss. Until the adverse court decision the taxpayer did not know whether or to what extent it had a right to be compensated for the burglary. Consequently, until 1928 the existence of the loss was as to it an open question.
The loss here sought as a deduction did not arise from the failure of an insurer to answer in full under a policy of insurance. It arose because petitioner did not have insurance in an amount sufficient to cover it. In , certiorari denied , rehearing denied , the taxpayer suffered a fire in 1921 which resulted in a loss amounting to approximately $ 166,000 in excess of the insurance coverage. In the same year the taxpayer brought suit for the full $ 166,000 against the electric company which had furnished it power claiming that the company was responsible*60 for the loss not covered by insurance. In 1925 the suit was finally decided adversely to the taxpayer. In holding that no part of the loss of $ 166,000 was deductible in 1924 or 1925, but that the full amount of it was sustained in 1921 and was deductible in that year, the court said:
Where, as in the case at bar, an actual physical loss occurs, resulting in a certain definite, fixed amount of damage, it seems better practice to allow the deduction for that entire amount of damage (not covered by insurance) in the year in which the loss actually occurs, according to the rule in the White Dental Case [, rather than to defer it until subsequent events indicate whether or not a recovery is to be had from other parties for a part of the loss. We think that this does not conflict with the rule of the Huff Case, supra [, that "the loss 'must be actual and present,'" because the loss is actual and present as soon as the physical damage occurs, as distinct from the situation where the loss claimed arises from a liability *61 which may or may not ever materialize.
*161 It appears to us that the test applied in the Highway Trailer Co. case is a practical one and that the rule there stated is proper. From a consideration of the situation presented here in the light of the holding of the court in that case, we think the decision there is applicable and determinative here. Consequently, we conclude that the loss here sought as a deduction was sustained by petitioner in 1946 and that the respondent did not err in denying any deduction therefor in 1947.
Decision will be entered for the respondent.
Footnotes
1. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
* * * *
(e) Losses by Individuals. -- In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise --
(1) if incurred in trade or business; * * *↩