Alison v. United States

• Decision Date: 08 December 1952
• Docket Number: 80,STEVENSON-CHISLET,Nos. 79,I,s. 79
• Citation: 344 U.S. 167,73 S.Ct. 191,97 L.Ed. 186
• Parties: ALISON v. UNITED STATES. UNITED STATES v.nc
• Court: U.S. Supreme Court

344 U.S. 167

73 S.Ct. 191

97 L.Ed. 186

ALISON

v UNITED STATES.

UNITED STATES

v. STEVENSON-CHISLETT, Inc.

Nos. 79, 80.

Argued Nov. 12, 1952.

Decided Dec. 8, 1952.

Mr. Karl E. Weise, Pittsburgh, Pa., for Alison.

Mr. David B. Buerger, Pittsburgh, Pa., for Stevenson-Chislett, Ins.

Mr. Hilbert P. Zarky, Washington, D.C., for the United States.

Mr. Justice BLACK delivered the opinion of the Court.

The questions in these two income tax cases are so much alike that they can be treated in one opinion. Both taxpayers had moneys embezzled by trusted agents and employees. As usual, the defalcations had been going on for many years before they were discovered. On discovery, efforts were made immediately to identify the takers and fix the dates and amounts of the thefts. In the Alison case, No. 79, the books revealed the thief and the precise amounts taken each year from 1931 to 1940. In No. 80, Stevenson-Chislett, Inc., the cover-up had been so successful that painstaking investigation failed to reveal who took the funds or the time when the unascertained person or persons took them. Each taxpayer claimed a tax deduction for the year the losses were discovered and their amounts ascertained. The Government objected, claiming that the deduction should have been taken in each of the prior years during which the moneys were being surreptitiously taken. In the Stevenson-Chislett case, the District Court held that the uncertain circumstances of the embezzlement entitled the taxpayer to take its losses the year the loss was discovered and the amount ascertained. 98 F.Supp 252. The District Judge decided the other way in the Alison case and denied her declarations. D.C., 97 F.Supp. 959. His holding, however, was not in accord with his own views, but was compelled, he thought, by the Third Circuit's decision in First National Bank of Sharon, Pa. v. Heiner, 66 F.2d 925. The Court of Appeals for the Third Circuit certified to us the question of deductibility in both cases. Pursuant to 28 U.S.C. § 1254(3), 28 U.S.C.A. § 1254(3), we ordered the complete records sent up so that we might decide the entire matters in controversy.

Internal Revenue Code, § 23(e) and (f), 26 U.S.C.A. § 23(e, f), authorize deductions for '* * * losses sustained during the taxable year * * *.' The Government reads this section as requiring a taxpayer to take a deduction for loss from embezzlement in the year in which the theft occurs, even though inability to discover in time might completely deprive the taxpayer of the benefit of this statutory deduction. Only at the time the money is stolen, so it is argued, is a loss 'sustained.' But Treasury practice itself belies this rigid construction. For more than thirty years the Regulations have provided that 'A loss from theft or embezzlement occurring in one year and discovered in another is ordinarily deductible for the year in which sustained.' 26 CFR § 29.43—2. (Emphasis supplied.) Information contained in a letter from the Commissioner attached as an appendix to the Government's brief cites many instances in which the Treasury has allowed deductions for embezzlement losses in years subsequent to those in which the thefts occurred. Apparently the Department has felt constrained to do this in order to prevent hardships and injustice. These have been departures from the 'ordinary' rule of attributing embezzlement losses to the year of theft.

This Treasury practice evidently stems at least in part from the special nature of the crime of embezzlement. Its essence is secrecy. Taxpayers are usually well aware of all the circumstances of financial losses for which tax deductions are...