## Facts

- In June 1976, a friend ran Dixon F. Miller’s insured boat aground, causing damage of less than $1,000.
- Miller did not submit an insurance claim, fearing that another claim would lead to cancellation of his insurance policies.
- Miller recovered $200 from the friend, leaving an unreimbursed loss of $642.55.
- After applying the $100 statutory reduction for personal casualty losses, Miller claimed a $542.22 casualty loss deduction on his 1976 federal income tax return under 26 U.S.C. § 165(c)(3).
- The Commissioner disallowed the deduction and issued a deficiency notice.
- The Tax Court ultimately allowed the deduction, and the Commissioner appealed.

## Issues

1. Whether a taxpayer’s voluntary choice not to file an insurance claim bars a casualty loss deduction under 26 U.S.C. § 165 when the property was insured but no insurance proceeds were received.
2. Whether “not compensated for by insurance or otherwise” in § 165(a) turns on actual compensation received, rather than the mere availability of insurance coverage.

## Decision

- The Sixth Circuit, sitting en banc, affirmed the Tax Court.
- The court held that Miller’s casualty loss was deductible to the extent it was not actually compensated by insurance or otherwise.
- The court rejected a rule denying deductions solely because insurance coverage was available but unclaimed.

## Legal Principles

- Under 26 U.S.C. § 165(a), a deductible loss is one “sustained during the taxable year and not compensated for by insurance or otherwise,” and the “not compensated” requirement focuses on actual reimbursement (or its equivalent), not hypothetical recovery.
- For individual taxpayers under § 165(c)(3), a personal casualty loss may be deducted (subject to statutory limits) when the taxpayer suffers an economic loss that remains unreimbursed.
- The mere existence of insurance coverage does not, by itself, negate a casualty loss deduction if the taxpayer receives no insurance payment and the loss is otherwise substantiated.
- Prior circuit precedent denying deductions where insurance was available was limited to the extent it conflicted with § 165’s text as applied to unclaimed coverage.

## Conclusion

The court ruled that an insured taxpayer who elects not to pursue insurance proceeds may still deduct the resulting personal casualty loss under § 165 to the extent the loss is in fact not reimbursed by insurance or otherwise.


Miller v. Commissioner, 733 F.2d 399 (6th Cir. 1984) (en banc)