Of Taxes and Other Casualties

There are numerous disasterous scenarios that, in the absence of insurance, can be financially devastating to the taxpayer, and could be considered casualty losses. Not all have tax consequences, however, and only a limited number give rise to a personal deduction under the Internal Revenue Code. This Commentary focuses on the rationale for the choices made in this regard by the drafters of the Code. The Commentary begins with a list of scenarios, each with a different tax result. Using the scenarios as hypotheticals, the Commentary discusses the role of various tax concepts, such as ability to pay, voluntary versus involuntary causation, realization, repairs, and sudden and unexpected, in reaching these results under the current Code. Arguments, pro and con, are made on the issue of negligence as a factor, as well as the role of insurance. The Commentary concludes that the current statute is unfair and inadequate and offers a proposed statute, entitled Deduction for Personal Casualty Expenditures, to remedy these defects