AMBROSE v. U.S., Cite as 110 AFTR 2d 2012-5564, 08/03/2012 , Code Sec(s) 165; 7422
Mark D. AMBROSE and Jennifer L. AMBROSE, pro se, PLAINTIFFS v. THE UNITED STATES, DEFENDANT.
Case Information:[pg. 2012-5564]
|Code Sec(s):||165; 7422|
|Court Name:||U.S. Court of Federal Claims,|
|Docket No.:||No. 11-64T,|
|Tax Year(s):||Year 2007.|
|Disposition:||Decision against Govt. in part.|
I. BACKGROUND 1
We are also enclosing our Sworn Statement in Proof Loss form, and we are asking that, within 60 days of this written request, you submit to us your signed, sworn proof of loss which sets forth, to the best of your knowledge, the information requested by the policy, [sic] the enclosed blank Sworn Statement In Proof of loss form is to assist you in meeting the conditions of this section of your policy.
We also find that you breached the above-quoted condition of the policy that required you to send to us your signed, sworn proof of loss within 60 days after our request. By letter dated January 29, 2003, Farm Family requested that you complete and submit within 60 days a signed, sworn proof of loss with respect to your fire loss of December 25, 2002. During the continuation of Mr. Ambrose's examination under oath on April 7, 2003, Mr. Ambrose confirmed that he received that January 29, 2003 letter. During that examination under oath, it also became apparent that you also received the blank proof of loss form enclosed with that letter. Despite your having received that letter and form within days of January 29, 2003, you did not submit your signed, sworn proof of loss to us until April 23, 2003, more than 60 days after our request, in material breach of the above-quoted policy condition. For this additional but separate reason, Farm Family must decline to make payment to you for your loss of December 25, 2002.
The deduction for personal casualty losses should be allowed only when a loss is attributable to damages to property that is caused by one of the specified types of casualties. Where the taxpayer has the right to receive insurance proceeds that would compensate for the loss, the loss suffered by the taxpayer is not damage to property caused by the casualty. Rather, the loss results from the taxpayer's personal decision to forego making a claim against the insurance company. The committee believes that losses resulting from a personal decision of the taxpayer should not be deductible as a casualty loss.
If a casualty or other event occurs which may result in a loss and, in the year of such casualty or event, there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, no portion of the loss with respect to which reimbursement may be received is sustained, for purposes of section 165, until it can be ascertained with reasonable certainty whether or not such reimbursement will be received. Whether a reasonable prospect of recovery exists with respect to a claim for reimburse-ment of a loss is a question of fact to be determined upon an examination of all facts and circumstances. Whether or not such reimbursement will be received may be ascertained with reasonable certainty, for example, by a settlement of the claim, by an adjudication of the claim, or by an abandonment of the claim. When a taxpayer claims that the taxable year in which a loss is sustained is fixed by his abandonment of the claim for reimbursement, he must be able to produce objective evidence of his having abandoned the claim, such as the execution of a release.
1 These facts are primarily drawn from plaintiffs' complaint and, for purpose of this motion, are assumed to be correct. See Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). For the reasons explained below, other facts are taken from documents filed by defendant that are referenced in plaintiffs' complaint.
2 The last of these provisions stated —
Your Duties After Loss. In case of a loss to covered property, you must see that the following are done:
g. Send to us, within 60 days after our request, your signed, sworn proof of loss which sets forth, to the best of your knowledge and belief:
3 This court lacks jurisdiction over the portion of the complaint that seeks a refund of $6,746 in New York state income taxes. See 28 U.S.C. § 1491(a).
4 As these cases indicate, “where the plaintiff refers to certain documents in the complaint and those documents are central to the plaintiff's claim, then the Court may consider the documents part of the pleadings for purposes of Rule 12(b)(6) dismissal, and the defendant's attaching such documents to the motion to dismiss will not require conversion of the motion into a motion for summary judgment.” Arthur v. Thomas, 674 F.3d 1257, 1265 (11th Cir. 2012) (quoting Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997)).
5 The deduction for casualties has one of the oldest histories of any revenue provision. The first version of it was included in the Revenue Act of 1867, which allowed as a deduction “losses actually sustained during the year arising from fires, shipwreck, or incurred in trade.” Revenue Act of 1867, ch. 169, §13, 14 Stat. 471 (1867). The references to “insurance” found in section 165(a) were added by the Act of 1894, ch. 349, § 28, 28 Stat. 509, 553 (1894). That Act was declared unconstitutional in Pollock v. Farmers' Loan Trust Co., 157 U.S. 429 [3 AFTR 2557] (1895), leading to the passage of the Sixteenth Amendment. Following that amendment, language similar to the current section 165(a) resurfaced in the Revenue Act of 1913, ch. 16, § IIB, 38 Stat. 167 (1913). See John Seidman, Seidman's Legislative History of Federal Income Tax Laws (1938-1861) 1018 (1938) (hereinafter “Seidman's (1938-1861)”).
6 Former section 165(h)(4) was redesignated as section 165(h)(5) by the Heartland Disaster Tax Relief Act of 2008, Pub. L. No. 110-343, § 706(a)(1).
7 Defendant made similar arguments in cases arising under section 213 of the Code, involving medical expenses. See Weaver v. Comm'r of Internal Revenue, 49 T.C.M. (CCH) 249 [¶84,634 PH Memo TC] (1984); see also Jewell v. Comm'r of Internal Revenue, 69 T.C. 791(1978).
8 Hills viewed the statute as employing a two-step analysis, requiring first that a determination be made as to whether there was a loss and then whether the loss was “compensated for by insurance or otherwise.” 697 F.2d at 1001. The court observed that a potential recovery from a principal, such as an indemnificatory, should be considered in the first part of this analysis. Id. The Eleventh Circuit found that the Commissioner's arguments collapsed the two-part analysis into a single consideration of whether a loss had been sustained. The court rejected this analysis because it rendered the “and not compensated” clause of section 165(a) superfluous, violating the well-known canon of statutory construction. Id. at 1002. See also Ann-Catherine Blank, “Income Tax — Deductions — An Insured Taxpayer is Not Required to Seek Reimbursement Before Claiming a Casualty Loss Deduction Under Section 165 — Miller v. Commissioner, 733 F.2d 399 [53 AFTR 2d 84-1252] (6th Cir. 1984),” 53 U. Cin. L. Rev. 1125, 1131 (1984).
9 Thus, in Hills, Judge Goldberg, writing on behalf of the court, observed that —
The disposition the Commissioner favors in this case would deny a section 165 deduction any time a loss is covered by insurance. This is functionally equivalent to reading the statute as if it said “not covered by insurance.” It is sufficient to point out that “covered” also has a plain meaning rather different from that of “compensated,” and that this Court must enforce the statute Congress actually enacted.
10 In Hills, the Eleventh Circuit explained that —
The initial House Ways and Means committee language was “losses ... not covered by insurance or otherwise compensated for.” The Senate Finance Committee amended the language to its final and enacted form of “losses ... not compensated for by insurance or otherwise.” This change makes clear the fact that Congress was aware of the difference between “covered” and “compensated” and intended to enact what it in fact enacted.
11 See also Weaver, 49 T.C.M. (CCH) at 252 (“a deduction for a loss under section 165 is not precluded by the failure of the taxpayer to claim reimbursement under existing insurance”); Orvis v. Comm'r of Internal Revenue, 48 T.C.M. (CCH) 1295, 1299 [¶84,533 PH Memo TC] (1984) (“If the taxpayer elects not to take the risk of claiming proceeds, by insurance or otherwise, and does not, in fact, receive compensation for the loss, section 165(a) permits the deduction.”); O'Neill v. Comm'r of Internal Revenue, 46 T.C.M. (CCH) 1476, 1479 [¶83,583 PH Memo TC]–80 (1983) (following Hills); Grigsby v. Comm'r of Internal Revenue, 47 T.C.M. (CCH) 620, 621 [¶83,744 PH Memo TC] (1983) (same); John Robinson & Allen Ford, “Casualty Losses: Reimbursement Claims and Implications for Deductibility,” 63 Taxes 355 (1985).
12 The legislative history indicates that the Administration's tax proposal would have adopted the rule enunciated in Hills and Miller. See The President's Tax Proposals to the Congress for Fairness, Growth, and Simplicity 269 (May 1985); see also Jt. Comm. on Tax'n, Tax Reform Proposals: Rate Structure and Other Individual Income Tax Issues, at 182 n. 36 (Aug. 12, 1985). Various bills would have disallowed the deduction entirely, by repealing Code sections 165(c)(3) and 165(h). Id. at 182. The language that would eventually become section 165(h)(5)(E) was then introduced as part of the Tax Reform Act of 1986, H.R. 3838, 99thCong. (Dec. 3, 1985).
13 See N.L.R.B. v. United Food & Commercial Workers Union, Local 23, 484 U.S. 112, 123 (1987) (“On a pure question of statutory construction, our first job is to try to determine congressional intent, using “traditional tools of statutory construction.””).
14 See also United States v. Shabani, 513 U.S. 10, 13 (1994) (stating that it is a settled principal of statutory construction that “absent contrary indications, Congress intends to adopt the common law definition of statutory terms”); 2B Norman J. Singer, Sutherland Statutory Construction § 50.4 (7th ed. 2012) (noting the “utility to examine a federal statute with reference to the common law of the various states as it existed at the time the statute was enacted”).
15 For judicial applications of the above definition of the word “file,” see: Moultrie Intern., Inc. v. Universal Underwriters Ins. Co., 545 F.2d 543, 546 (5th Cir. 1977); GRK Fasteners, Ltd. v. Bennett, 2004 WL 2260600, at 4 (D. Or. Oct. 5, 2004); Alliant Techsystems v. United States, 178 F.3d 1260, 1265 (Fed. Cir. 1999); Herald Ass'n, Inc. v Judicial Conduct Bd., 544 A. 2d 596, 602 (Vt. 1988); Reilly-Benton Co., Inc. v. Liberty Mut. Ins. Co. , 278 So. 2d 24, 28 (La. 1973); Narramore v. Fannin's Gas & Equipment Co., 293 P.2d 671, 673 (Ariz. 1956); Gage v. Jordan, 147 P.2d 387, 393 (Cal. 1944); Town of Fairfield v. Fleisher, 13 Conn. Supp. 62 (Conn. Super. 1944); see also United States v. Lombardo , 241 U.S. 73, 76 (1916). For judicial applications of the above definition of the word “claim,” see: Estate of Rubinstein v. United States, 96 Fed. Cl. 640, 652 [107 AFTR 2d 2011-681] (2011); Flint Hills Resource L.P. v. Lovegreen Turbine Servs., Inc., 2008 WL 4527816, at 9 (D. Minn. Sept. 29, 2008); In re Diet Drugs, 2003 WL 21641957, at 6 (E.D. Pa. March 12, 2003); Richardson Electronics, Ltd. v. Federal Ins. Co. , 120 F. Supp. 2d 698, 700–01 (N.D. Ill. 2000); Dana Corp. v. Fireman's Fund Ins. Co., 1997 WL 135595, at 7 (N.D. Oh. March 11, 1997); Thomas v. Progressive Cas. Ins. Co., 749 N.W. 2d 678, 684 (Iowa 2008); Fireman's Fund Ins. Co. v. AIG Hawaii Ins. Co., Inc., 126 P. 3d 386, 400 (Haw. 2006). As many of these cases demonstrate, the word “claim” “has no different usage in the insurance industry.” Central Ill. Pub. Serv. Co. v. Am. Empire Surplus, 642 N.E. 2d 723, 725–26 (Ill. App. 1994).
16 Defendant argues that, under New York law, the “proof of loss” is essentially part of a valid claim. It cites in this regard, New York Insurance Law § 3407(a), which provides:
The failure of any person insured against loss or damage to property under any contract of insurance ... to furnish proofs of loss to the insurer or insurers as specified in such contract shall not invalidate or diminish any claim of such person insured under such contract, unless such insurer or insurers shall, after such loss or damage, give to such insured a written notice that it or they desire proofs of loss to be furnished by such insured or insurer or insurers on a suitable blank form or forms.
17 To the extent it is debatable whether a taxpayer could file a putative claim with his insurer, with no intention of pursuing the matter, allow the claim to languish and then still qualify for a deduction under section 165(c), it is sufficient to point out that is not this case.
18 These same regulations go on to state that “[i]f in the year of the casualty or other event a portion of the loss is not covered by a claim for reimbursement with respect to which there is a reasonable prospect of recovery, then such portion of the loss is sustained during the taxable year in which the casualty or other events occurs.” Treas. Reg. § 1.165-1(d)(2)(ii).
19 The notion that a “claim” must include proof of the facts asserted therein is belied by how the IRS has construed that same term in the context of provisions like section 6511(a) and 7422(a) of the Code. Section 7422(a) bars the initiation of a refund suit “until a claim for refund or credit has been duly filed with the Secretary” within the time period prescribed by section 6511(a). 26 U.S.C. §§ 6511(a), 7422(a). The regulations under these provisions make clear that this “claim” need not include proof of the matters asserted therein. Rather, they provide that “[t]he claim must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof,” together with a declaration indicating that the claim is “made under the penalties of perjury.” Treas. Reg. § 301.6402-2(b)(1). Accordingly, in this context, the IRS has construed the term “claim” consistent with its ordinary meaning.
20 See Richard Posner, Economic Analysis of Law 378 (2d ed. 1977) (“As for the casualty-loss deduction, its effect is not so much to compensate people whose well-being has been impaired as to compensate people who have lacked the foresight to insure.”). Of course, if defendant were successful in obtaining a result here that is untethered to the statute's language, nothing would prevent it from arguing in the next case that a casualty loss suffered by an uninsured taxpayer was attributable to the taxpayer's “personal decision” to forego insurance coverage and thus be nondeductible, as well.
21 Such an analysis proved unnecessary here only because plaintiffs first aggressively pursued their claims against their insurer in state court — hardly an indication, by the way, that they should be viewed as having willingly foregone their insurance claim in favor of receiving a casualty loss deduction. If the state court had not acted first, then, under defendant's view, it would have been for this court to resolve issues such as when plaintiffs first received the request for proof of loss so as to trigger the timing provision in the policy. And that, of course, is but one example of the host of legal and factual issues that would arise if every taxpayer claiming a casualty loss was obliged to demonstrate that he had done everything possible to collect under an applicable insurance policy.
22 Nor is there any indication that Congress intended to treat otherwise similarly-situated taxpayers, each timely filing insurance claims, differently depending upon what their respective policies or insurers demanded in the way of proof. In this regard, it should not be overlooked that if Farm Family had not requested the “proof of loss” under the policy in question, plaintiffs would not have been required to file that document and defendant would have no argument that plaintiffs failed to meet the requirements of section 165(h)(5)(E).
23 This is not to say, of course, that plaintiffs' loss deduction will ultimately be allowed. Inter alia, issues remain concerning the source of the fire in question. See Blackman v. Comm'r of Internal Revenue, 88 T.C. 677 (1987), aff'd, 867 F.2d 605 (1st Cir. 1988).
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