Burns v. United States, Civ. A. No. 31570.

• Decision Date: 25 May 1959
• Docket Number: Civ. A. No. 31570.
• Citation: 174 F. Supp. 203
• Parties: Howard F. BURNS and Elna A. Burns, husband and wife, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Ohio

174 F. Supp. 203

Howard F. BURNS and Elna A. Burns, husband and wife, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. No. 31570.

United States District Court N. D. Ohio, E. D.

May 25, 1959.

Howard F. Burns, William H. Fleming, Cleveland, Ohio, for plaintiffs.

Russell E. Ake, U. S. Atty., Cleveland, Ohio, Charles K. Rice, Asst. Atty. Gen., James P. Garland, Philip R. Miller, George T. Rita, Dept. of Justice, Washington, D. C., for defendant.

WEICK, District Judge.

This action is for the recovery of $1,870.66 (plus interest at 6% from November 1, 1950) alleged as an overpayment of personal income tax for the year 1948. Plaintiffs claim they were entitled to a deduction, from their income, of $2,811.40, as a casualty loss under Section 23(e) (3) of the Internal Revenue Code of 1939, 26 U.S.C. § 23(e) (3), because an ornamental elm tree, located on their residence property, had become afflicted with the "Dutch Elm Disease", and had to be destroyed in consequence thereof.

The deduction was claimed in plaintiffs' income tax return for the year 1948, and when disallowed, they paid the deficiency of $1,707.08 plus interest of $163.58 on November 1, 1950. A claim for refund was disallowed on January 2, 1953 and this suit was filed on January 15, 1955.

There is little, or no, controversy over the basic facts.

Plaintiffs' residence property had a frontage of 195 feet on South Woodland Avenue in the City of Shaker Heights, Ohio and extended to a depth of about 344 feet to the golf course of the Shaker Heights Country Club.

During the 1920's two elm trees were planted in front of the house, one near the east end and the other close to the west end thereof, the intention being for the trees to have somewhat of a framing effect on the house. The trees grew to be large and healthy.

In June of 1948, plaintiffs were advised by the Charles F. Irish Co., Inc., experienced arborists, that there were indications that one of the trees might be afflicted with the Dutch Elm Disease. Tests made at a government laboratory confirmed that fact and efforts were made to save the tree by cutting away the afflicted portion. This proved unsuccessful and it was then decided that the only remedy was to remove the tree entirely. This was done by the Irish firm in August of 1948.

The Dutch Elm Disease is a fungus symptomized by the wilting of the tree leaves. The fungus is spread by the scolytus beetle, by root grafting, or by pruning tools. In this case, it was spread by the beetle. The beetle itself, which travels from one elm tree to another, causes little or no damage. It is only when the beetle is infected with the fungus that any damage occurs.

If the beetle is infected when it bores into the tree, the fungus on its body is communicated to the food and water-conducting cells of the tree immediately beneath the bark, known as the merismatic tissue. These become afflicted with the disease and clog up and the tree becomes, in effect, starved for want of nourishment.

When it was discovered that plaintiffs' tree was afflicted with the fungus they were advised that the only known way of preventing the spread of the disease was to have the tree removed in its entirety, including the roots, and have it burned. Today, methods of checking the disease have been developed which give a greater chance of saving a diseased tree, but they were not known in 1948.

Throughout the year 1948, Ohio General Code, § 1132 (now Revised Code, § 927.22) and Ordinance No. 4732 of the City of Shaker Heights were both in force. By this legislation, the maintenance or continuance of trees, plants or shrubs infected or infested with injurious insects or plant disease was declared to be a public nuisance and the owner could be required by public authority to remove and destroy them if they could not be successfully treated. Otherwise, the owner was required to cause them to be treated or to adopt such preventive measures as may be ordered. If the owner failed to carry out the orders, the public authority could treat or remove them as was necessary and charge the expense thereof against the property upon which such expense was incurred.

The first matter for consideration is whether plaintiffs actually suffered any loss by the destruction of this tree. In my opinion, they did. The tree in question was one of two elms so situated in the front of the Burns' residence as to "frame" the house. Following the removal of one of the trees the framing effect was lost. Plaintiffs, however, had additional elm trees in the rear of their residence, but because of their location were not as valuable as the front trees.

Edgar L. Ostendorf, a realtor and appraiser of great experience, stated that in his opinion the removal of the tree could have resulted in a $5,000 diminution in the price the property could bring. This, he testified, was due to the fact that in the social strata to which a prospective buyer of such a home would probably belong esthetic considerations were of importance in the purchase of a home.

Leslie Petrie, an experienced arborist, testified that in his opinion the plaintiffs' loss was to be valued at $2,600. This figure represented the effect on the residential value of the loss of the tree. He adequately explained his basis for this conclusion, which was essentially the same as Mr. Ostendorf's. Although Mr. Petrie was not experienced in real estate valuation he was experienced in evaluating plants and trees.

The Government presented Frank Bombay, an Internal Revenue real estate appraiser, to testify on this question. His testimony showed that over the course of years since 1948 the Burns' residence gained substantially in value, and based on construction industry figures should have had a gain in value in 1948.

Assuming that this was true, other comparable real estate was similarly affected and increased in value due in no small measure to inflationary tendencies in our economy. In any event, the Burns' property would have been worth more if the tree had not been removed.

I consider $2,600 for the loss of the tree and the $211.40 expenses incurred in its removal to be fair and reasonable under the circumstances.

The remaining question here is whether that loss qualifies as a "casualty" within the meaning of Section 23 (e) (3) of the Internal Revenue Code of 1939. 26 U.S.C. (1952 ed.) § 23. I am of the opinion that it does not.

The statute reads as follows:

Sec. 23 "In computing net income there shall be allowed as deductions:

* * * * * *

"(e) Losses by Individuals. In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise —

* * * * * *

"(3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft."

The original income tax statute passed in 1913 allowed deduction only for losses arising from "fires, storms, or shipwreck." 38 Stat. 114, 167. In 1916, the statute was amended to add the words "or other casualty, and from theft." 39 Stat. 756, 759.

There appears to be no additional legislative history.

The words "or other casualty" were not defined so that the courts have been required to determine whether the facts in each case come within the scope of the statute. As will be pointed out, this has produced varying results.

Taxpayers rely upon decisions interpreting Workmen's Compensation Acts and casualty and accident insurance policies. In two English cases, workmen employed in wool-combing factories had become infected with anthrax from the wool. In one of the cases the infection settled on the workman's neck where his collar had rubbed a pimple and caused an abrasion. In the second case, the anthrax bacillus settled in the workman's eye. In both cases, the court held that they were entitled to compensation as they were injured by accident arising out of and in the course of employment. Higgins v. Campbell & Harrison, Limited; Turvey v. Brintons, Limited, 1 (1904) K.B.D. 328 App.Cas. (1905) 230.¹

The accident insurance case relied on is Rheinheimer v. Aetna Life Insurance Co., 1907, 77 Ohio St. 360, 83 N.E. 491, 15 L.R.A.,N.S., 245, where decedent accidentally scratched his finger and blood-poisoning set in resulting in his death. The court held that death was the proximate result of the scratching of his finger and allowed recovery.

Cases of this type are inapposite because they involve a much different rule of construction.

It is well-settled that Workmen's Compensation Acts are liberally construed in favor of injured workmen in order to effectuate the beneficent purposes of the law. Bowling v. Industrial Commission, 1945, 145 Ohio St. 23, 60 N.E.2d 479; 99 C.J.S. Workmen's Compensation § 20, p. 92.

The rule of construction with respect to insurance policies is stated as follows:

It is one of the best known principles of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured or his beneficiary, and strictly as against the insurer. 30 Ohio Jur. (2d) Insurance § 215.

Various reasons are given for liberality in construing policies of insurance. The insured has little or no voice in the preparation of the policy and pays a consideration for protection.

On the other hand, deductions from income are a matter of legislative grace. The burden is upon the taxpayer to show clear statutory authority therefor. Interstate Transit Lines v. Commissioner, 1943, 319 U.S. 590, 63 S.Ct. 1279, 87 L. Ed. 1607; Deputy v. Dupont, 1940, 308 U.S. 488, 60 S.Ct. 363, 84 L.Ed. 416; New Colonial Ice Co. v. Helvering, 1934, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348; Mills Estate, Inc. v. Commissioner, 2 Cir., 1953, 206 F.2d 244.

In determining what the taxpayer may deduct, ambiguities in the statute are not resolved in his favor, but are construed against him. Bagnall v. Commissioner, 9 Cir., 1938, 96 F.2d 956; Commissioner of Internal Revenue v. Shoong, 9...