## Facts

- Nancy Carpenter owned a diamond engagement ring (platinum mounting, a 0.76-carat diamond, and four small diamonds).
- In 1962, Nancy placed the ring in a water glass containing ammonia to clean it and left the glass next to the kitchen sink.
- Nancy’s husband, William Carpenter, did not know the ring was in the glass.
- While washing dishes, William emptied the glass into the sink, then turned on the garbage disposal.
- The ring was damaged in the garbage disposal and, after being recovered and taken to a jeweler, was treated as a total loss.
- The Tax Court found the ring’s fair market value (FMV) immediately before the event was $1,010 (mounting $235; large diamond $725; small diamonds $50).
- The Tax Court found the ring’s FMV immediately after the event was $30 (mounting $5; large diamond $0; small diamonds $25).
- William later bought Nancy a replacement ring for $169.50.
- The Carpenters claimed a casualty-loss deduction on their 1962 joint return for the ring; the Commissioner disallowed it and determined a 1962 income-tax deficiency of $221.92.
- The Carpenters petitioned the U.S. Tax Court for redetermination; the case presented a single disputed item: the casualty-loss deduction.

## Issues

1. Did the accidental destruction of Nancy Carpenter’s engagement ring in a household garbage disposal qualify as an “other casualty” loss deductible under IRC § 165(a) and § 165(c)(3)?
2. If a casualty loss occurred, what was the proper amount of the deductible loss: the ring’s FMV decline (before vs. after), and was any reduction required because William bought a replacement ring or because the damaged ring retained some value?

## Decision

- The court held that the sudden, accidental destruction of the ring in the garbage disposal constituted an “other casualty” within the meaning of IRC § 165(c)(3).
- The court determined the amount of the loss by the decline in the ring’s FMV caused by the event: $1,010 (before) minus $30 (after) = $980.
- The court treated the remaining $30 value as already reflected in the “after” FMV and did not reduce the loss because William later purchased a replacement ring.
- The Commissioner’s deficiency determination, to the extent based on disallowing the casualty-loss deduction, was not sustained.

## Legal Principles

- IRC § 165(a) and § 165(c)(3) allow an individual to deduct losses of nonbusiness property if the loss arises from “fire, storm, shipwreck, or other casualty” (subject to statutory limits).
- “Other casualty” includes sudden, unexpected, accidental events that physically damage or destroy property; it is not limited to large-scale disasters.
- The amount of a casualty loss for personal-use property is measured by the property’s reduction in fair market value caused by the event (FMV immediately before minus FMV immediately after), rather than by the cost of a replacement item.
- Any remaining value of the damaged property is accounted for in the FMV-after figure, which reduces the deductible loss.
- A later voluntary replacement of the damaged property does not erase the fact of the loss to the original property for § 165 purposes.
- In a Tax Court deficiency case, taxpayers generally must prove entitlement to the deduction and the amount of the loss.

## Conclusion

Carpenter v. Commissioner holds that a ring accidentally destroyed when unknowingly poured into a sink and caught in a garbage disposal is an “other casualty” under IRC § 165(c)(3), and that the deductible amount is the ring’s FMV decline caused by the accident (here, $980), not the cost of a later replacement ring.


Carpenter v. Commissioner, T.C. Memo. 1966-228 (1966)