Miller v. Commissioner: Deductibility of Casualty Losses After Voluntary Election Not to File an Insurance Claim

Taxpayers who suffer casualty losses may decide, for a variety of reasons, not to file an insurance claim for recovery of those losses. Section 165 of the Internal Revenue Code of 1954 allows a deduction for “any loss sustained during the taxable year and not compensated for by insurance or otherwise.”\u27 Consequently, the question arises whether a taxpayer may claim a casualty loss deduction even though the taxpayer did not seek insurance reimbursement for the loss. In Miller v. Commissioner, the United States Court of Appeals for the Sixth Circuit, in a 6-5 en banc decision, expressly overruled its previous decision in Kentucky Utilities Co. v. Glenn and held that a taxpayer who voluntarily chooses not to file an insurance claim for recovery of a loss could still claim a section 165 deduction. Part I of this comment examines the Miller holding and its underlying rationale. Part II addresses the impact of Miller on federal income tax law and suggests that by overruling Kentucky Utilities, Miller changes the law regarding the deductibility of losses under section 165 after a voluntary election not to file an insurance claim. Part III concludes that the Sixth Circuit\u27s literal interpretation of section 165(a)\u27s language “not compensated for by insurance or otherwise”\u27 is a significant defeat for the Internal Revenue Service