Axelrod v. Commissioner

Fat, /., concurring: Since the issue raised in Judge Quealy’s concurring opinion has not been placed before the Court by the majority, I consider a full discussion of this issue premature at the present time, the matter in controversy having been properly disposed of by the majority upon the valid grounds cited. However, in view of the extended treatment of the issue by Judge Quealy, I do not consider it inappropriate to briefly note my own views on this subject.

In concluding that the availability of insurance coverage must in all circumstances defeat any claimed deduction for casualty losses, heavy reliance has been placed upon the case of Kentucky Utilities Co. v. Glenn, 394 F. 2d 631 (C.A. 6, 1968). In my view that case is distinguishable from the instant one and, in any event, in light of the very brief treatment of the issue therein should not preclude a fresh consideration of this issue. Focusing then upon the statutory provision underlying the present dispute, I find it difficult to read into such provision an unqualified disallowance of a casualty loss deduction. The purpose of limiting the deduction in question to uncompensated losses is to deny an unwarranted tax benefit to taxpayers who sustain essentially ephemeral losses, the effects of which will be neutralized by the receipt of compensation. The allowance of a loss under such circumstances would clearly provide a windfall to taxpayers who have not sustained an economic loss in any realistic sense. In contrast, the insured taxpayer who is forced to forego the benfits of such insurance does sustain a loss. Such a loss is no less real or permanent than that suffered by an uninsured individual and accordingly should equally give rise to a mitigating tax deduction. The effect of a contrary view is to discriminate against persons carrying insurance, a result which I do not think was intended.

Nor do I think there exists any validity to the assertion that the voluntary surrender of rights under an insurance contract justifies the disallowance of a deduction for the sustained loss. Such a view is, in my opinion, highly artificial and divorced from reality. Practical considerations which often influence the decision of a taxpayer to refrain from pursuing bis legal rights under an insurance contract render the assumed freedom of choice so heavily relied upon largely illusory. The insured individual is frequently compelled to forego the desirable benefits of his insurance coverage in order to avert the otherwise inevitable cancellation of his policy or prohibitive increase of his insurance rates. Under these circumstances, such an individual is for all practical purposes without insurance, having been forced to assume the risk of loss in order to assure his continued coverage, and should be so treated. Nor do I consider the application of constructive-receipt principles apposite to the issue under consideration since the realization of any existing legal rights by the taxpayer is effectively barred by the resulting detrimental consequences indicated above.

While a taxpayer’s failure to collect payment under an insurance policy may sometimes justify disallowance of a loss deduction, I would readily conclude, given the realities of the insurance field, that the statute does provide a deduction for insured but unrecovered losses where the taxpayer has, for valid practical reasons, relinquished his rights to claim compensation from the insurance company.

Deennen and Hoyt, //., agree with this concurring opinion.