*1636 On or about February 8, 1925, the petitioner's warehouse was burglarized and goods in the amount of $23,984.72 were stolen. The petitioner was indemnified against loss by burglary by an insurance policy. The insurance company refused to pay the loss and suit was brought against it, which was decided adversely to the petitioner in 1928. The petitioner claims the deduction of the loss in its income-tax return for 1928. Held, that the loss was not sustained until 1928 and is a legal deduction from the gross income of that year.
*457 OPINION.
SMITH: This proceeding, involving an alleged deficiency for the calendar year 1928 in the amount of $3,238.17, is before the Board upon the respondent's motion for judgment on the pleadings on the ground that the amended petition fails to state a cause of action and, specifically, "upon its face discloses that the loss, if any, from burglary was suffered on February 8, 1925, and not during the calendar year 1928."
*458 The allegations of fact stated in the amended petition are as follows:
1. The*1637 petitioner is a corporation of the State of New York with principal office at 348 Seventh Avenue in the City of New York, State of New York.
2. The notice of deficiency (a copy of which is attached [to the amended petition] and marked Exhibit A) was mailed to the petitioner on or after July 15, 1930.
3. The taxes in controversy are income taxes for the calendar year 1928 and for $3,238.17.
* * *
5. The facts upon which the petitioner relies as the basis of this proceeding are as follows:
(a) On or about December 19, 1924, the petitioner procured through a duly licensed insurance broker a policy of insurance indemnifying the petitioner against losses it might sustain through burglary.
(b) During the term of said policy of insurance the petitioner on or about February 8, 1925, suffered a loss through burglary in the amount of $23,984.72.
(c) The petitioner immediately notified the insurance company of said loss and duly filed its proof of loss for said amount of $23,984.72.
(d) Thereafter said insurance company verified said loss and found it to be correct, but asserted that a representation in the application for insurance made by the insurance broker was*1638 incorrect.
(e) The petitioner thereupon began suit against said insurance company for the collection of its claim under the policy for $23,984.72.
(f) In April, 1928, after trial of said suit in the Supreme Court of the State of New York, a final judgment was rendered against petitioner and in favor of said insurance company.
(g) Accordingly, in 1928 said loss of $23,984.72 was charged off and deducted from the gross income of the petitioner for that year.
(h) The respondent has disallowed the deduction of said loss for 1928.
(i) The petitioner regularly keeps its books of account and reports its income on the accrual basis.
The only question presented by this proceeding is whether the petitioner is entitled to deduct from its gross income of 1928 the amount of a loss resulting from a theft of goods in 1925, where the petitioner was protected by burglary insurance and where the Supreme Court of the State of New York decided in 1928 that petitioner was not entitled to recover the loss from the insurer.
Section 23(f) of the Revenue Act of 1928 permits a corporation to deduct from gross income in its corporate income-tax return "losses sustained during the taxable*1639 year and not compensated for by insurance or otherwise." Section 234(a)(4) of the Revenue Act of 1924 and the prior revenue acts provide for the same deduction. Under such acts the Treasury Department regulations uniformly require that in order for losses to be deductible "they must usually be evidenced by closed and completed transactions." Article 141, Regulations 45, 62, 65, 69; article 171, Regulations 74. The Commissioner early held that a loss ostensibly incurred in a taxable year should *459 not be allowed as a deduction for such year where and to the extent such loss was covered by a claim against an insurer. In O.D. 165, C.B. 1, p. 125 (December, 1919), the Bureau ruled:
A loss incurred through embezzlement is an allowable deduction from gross income for the year or years in which the loss was actually sustained. The amount of such loss should be reduced by the reasonable value of any claim against the embezzler or his sureties which can fairly be said to have an ascertainable value, such as a claim against a surety company.
To the same effect see
This*1640 Board and the courts have held that where fire, embezzlement or other casualty occurs and is covered by insurance or otherwise, no deduction can be claimed for the year of the causalty, but that it is allowable for the year when the claim for compensation thereof is settled.
In
* * * The partnership was compensated by insurance for the total loss sustained in the year 1921. The insurance due petitioners for the loss sustained, accrued in the year 1921 and was properly applied in that year against the amount of the loss by fire.
In
The statute contemplates that a deduction shall be allowed when a loss has in fact and in*1641 truth been sustained, and the establishment of the loss is a question of fact in each case and may not always depend upon the happening of any particular event. In order to have been in a position to claim a deduction in 1918, the taxpayer would have been required to justify, with at least some degree of accuracy, the amount of the loss; otherwise the deduction from gross income for 1918 would have represented a mere guess, in all probability, unjust either to the Government or to itself. It is evident, therefore, that whatever amount the petitioner might have computed, with no more information than it had, would have been conjectural, because it was not in possession of information necessary to enable it to make such computation.
The petitioner, believing that the machinery would not be a total loss, proceeded in good faith to determine the loss which it had actually sustained by returning it to those who were in a position best to judge the extent of the damage. By so doing, it determined, during 1919, that the actual loss sustained on account of damage to the machinery was $14,872.49.
In *1642
In
* * * nothing in the findings from which we could conclude that the respondent in 1918 had ceased to regard his rights under the contract as having value or that there was then reasonable ground to suppose that efforts to enforce them would be fruitless. * * *
*1643 In
The facts in the instant case show that in 1925 the petitioner was protected by an insurance policy against any loss from burglary. It could not reasonably have claimed any loss in its 1925 return from burglary. From its standpoint it was covered by insurance. When the insurer refused to pay the loss, the petitioner in good faith brought suit against it for the recovery of the loss. The loss was sustained when the court held that the insurance company was not liable for the amount thereof. In a very practical*1644 sense the loss was sustained in 1928.
Judgment will be entered under Rule 50.