## Facts

- An individual taxpayer owned a residential lot containing 40 ornamental pine trees.
- The trees were healthy on July 1, 1976, and all were dead by July 10, 1976.
- The trees died from a mass attack of southern pine beetles that girdled the cambium layer of each tree within 5 to 10 days after the beetles’ arrival.
- Epidemic beetle attacks had not previously been known in the vicinity of the taxpayer’s property.
- The ruling addressed whether this tree loss on personal-use property could be deducted as a casualty loss under I.R.C. § 165(c)(3), and it modified an earlier IRS position that had broadly denied casualty-loss treatment for insect-caused tree death.

## Issues

1. Whether the rapid death of ornamental trees on personal-use residential property from a sudden, unprecedented mass insect attack constitutes an “other casualty” loss deductible under I.R.C. § 165(c)(3).
2. Whether such insect-related losses are distinguishable from nondeductible losses caused by progressive deterioration through a steadily operating cause.

## Decision

- The IRS concluded the taxpayer sustained an allowable casualty loss under I.R.C. § 165(c)(3) for the death of the ornamental trees.
- The IRS determined that a massive southern pine beetle attack killing the trees within 5 to 10 days in an area not known for such attacks satisfied the “other casualty” requirement.
- The ruling modified the prior IRS position to the extent it categorically denied casualty-loss treatment for losses from insect attacks.

## Legal Principles

- Under I.R.C. § 165(a), a taxpayer may deduct losses sustained during the taxable year that are not compensated by insurance or otherwise, subject to applicable limitations.
- For individuals, I.R.C. § 165(c)(3) permits deductions for losses of nonbusiness property if the losses arise from “fire, storm, shipwreck, or other casualty, or from theft.”
- “Other casualty” is limited to losses from an identifiable event that is sudden, unexpected, or unusual.
- Losses attributable to progressive deterioration of property through a steadily operating cause are not casualty losses.
- An insect-related loss may qualify as a casualty loss when the facts show a rapid, concentrated, and unusual destructive event rather than gradual decline.

## Conclusion

A sudden, unusual mass southern pine beetle attack that kills ornamental pine trees within a short period (5–10 days) can constitute an “other casualty” under I.R.C. § 165(c)(3), allowing a casualty loss deduction for uncompensated loss on personal-use property, subject to the statute’s general limitations and valuation rules.


Rev. Rul. 79-174, 1979-1 C.B. 99 (1979)