## Facts

- The IRS addressed the meaning of “other casualty” for individual casualty-loss deductions under I.R.C. § 165(c)(3).
- Prior IRS and judicial interpretations generally required that a casualty stem from an identifiable event that is sudden, unexpected, and unusual, and analogous to fire, storm, or shipwreck.
- A motivating precedent involved jewelry: a diamond was accidentally and irretrievably lost from a ring after a sudden mishap, and the Tax Court treated the loss as potentially deductible if caused by a qualifying event.
- The IRS had previously acquiesced in that Tax Court result and then issued administrative guidance clarifying when accidental loss (as distinct from physical destruction) can qualify.
- The ruling also reaffirmed that losses attributable to progressive deterioration from steadily operating causes are not casualty losses.

## Issues

1. Whether an accidental and irretrievable loss of property can constitute a deductible “other casualty” loss under I.R.C. § 165(c)(3).
2. What criteria govern whether a loss is a “casualty” for purposes of § 165(c)(3), including whether gradual deterioration is excluded.

## Decision

- The IRS concluded that accidental and irretrievable loss of property may qualify as a casualty loss under § 165(c)(3).
- The IRS limited this acceptance to situations where the loss results from an event that is identifiable and sudden, unexpected, and unusual.
- The IRS reaffirmed that losses from progressive deterioration due to steadily operating causes do not qualify as casualty losses.
- The IRS described its position as changed only to the extent that accidental loss can qualify, without relaxing the standard casualty requirements.

## Legal Principles

- For § 165(c)(3), a “casualty” includes damage, destruction, or loss of property caused by an identifiable event that is sudden, unexpected, and unusual.
- Accidental and irretrievable loss may be treated as a casualty loss, but only if the event causing the loss satisfies the same “sudden, unexpected, and unusual” criteria applied to enumerated casualties.
- Gradual or progressive deterioration from steadily operating causes is not a casualty, even if it results in substantial property loss.
- “Other casualty” is construed by analogy to fire, storm, or shipwreck, limiting the deduction to event-driven losses rather than ordinary wear, decay, or common incidents.

## Conclusion

The IRS recognized that property can be removed from a taxpayer’s use and enjoyment through accidental, irretrievable loss and still fall within § 165(c)(3), but only when the loss is traceable to an identifiable event that is sudden, unexpected, and unusual; deterioration-based losses remain non-deductible.


Rev. Rul. 72-592, 1972-2 C.B. 101 (1972)