## Facts

- Mary Frances Allen owned a diamond brooch with a stipulated fair market value of $2,400.
- On January 21, 1945, Allen wore the brooch to the Metropolitan Museum of Art in New York City.
- Around 4:30 p.m., she knew the brooch was still attached; around 5:00 p.m., near closing time while still in the museum or on the stairway, she discovered it missing.
- The museum was crowded (approximately 5,000 people).
- Allen did not see or feel anyone remove the brooch and did not know how or when it became detached.
- She immediately notified museum personnel and searched areas she had visited; the brooch was not found.
- She notified the jeweler; reward notices were published in newspapers, and she filed a police report describing the brooch as stolen.
- On her 1945 return, Allen claimed a $2,400 theft-loss deduction under I.R.C. § 23(e)(3) (1939 Code).
- The Commissioner disallowed the deduction for insufficient proof of theft and determined a $1,800.16 deficiency; Allen petitioned the Tax Court.

## Issues

1. Whether Allen proved, by a preponderance of the evidence, that the brooch was lost “by theft” within the meaning of I.R.C. § 23(e)(3), rather than through accidental loss or mere disappearance.

## Decision

- The Tax Court sustained the deficiency and entered decision for the Commissioner.
- Allen failed to carry her burden to show that the loss arose from theft.
- The court declined to infer theft from crowded conditions and an unexplained disappearance without additional supporting facts.
- A dissent would have inferred theft (or wrongful retention equivalent to theft) as the most probable explanation under the circumstances.

## Legal Principles

- Deductions are matters of legislative grace; the taxpayer bears the burden to prove entitlement.
- A theft-loss deduction under I.R.C. § 23(e)(3) requires proof, by a preponderance of the evidence, that the loss arose from theft.
- Unexplained disappearance of property, even in circumstances where theft is possible, does not by itself establish theft.
- A taxpayer’s characterization of the loss as “stolen” in reports or advertisements is not independent proof that theft occurred; the record must contain facts making theft more probable than non-theft explanations.

## Conclusion

The Tax Court denied the theft-loss deduction because the brooch’s disappearance, without specific evidence indicating wrongful taking, did not prove theft by a preponderance of the evidence, and the taxpayer’s post-loss reports and reward notices could not supply that proof.


Allen v. Comm’r, 16 T.C. 163 (1951)