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Opinion of the Court
126 C. Cls.
on September 8, 1938, and did not see any of these furnishings after that date. In 1946, in answer to his inquiry, Radler and Assmann informed him that the stored objects had been taken upon order of the Gestapo in 1943 and sold at public auction.
During 1936 and 1937 the plaintiff had purchased Hungarian gold bonds and shares of I. G. Farben stock. He did not at any time take physical possession of these securities, but left the former with the Bohemian Union Bank in Prague and the latter with the same bank in Berlin. The Hungarian gold bonds were sold in 1942 at the direction of the German Gestapo and the proceeds were credited to the plaintiff's account. A stock dividend on the I. G. Farben stock was credited to the plaintiff's account in 1942. He has never received the proceeds from the sale of the Hungarian gold bonds, nor has he ever received the I. G. Farben stock or anything of value therefor.
On November 14, 1941, the plaintiff had on deposit with the Dresden Bank, Stuttgart branch, Germany, RM 490. While this amount was never withdrawn by the plaintiff, the account had a balance of zero on October 4, 1943.
During his association with United Chemical, the plaintiff had a personal drawing account with the company in which the company credited to him such items as salary, director's fees and other amounts. While it was shown that there was a balance in this account of 244,833 crowns and 63 hellers (Czechoslovakian currency) during November and December 1941, the plaintiff never withdrew any of that amount. This as well as the other accounts mentioned above were labeled by the banks as "preferred blocked credit," "blocked account,' or "blocked credit." This meant that the owner could not remove the funds from the country without obtaining a permit from the German government, and such permit was unobtainable by plaintiff.
During 1937 and 1938 plaintiff was a director of a subsidiary of United Chemical at a salary of 10,000 Czechoslovakian crowns per year. He never received any of the amounts due him for either of those years. In 1938 when he was spending the greater part of his time in Switzerland, the plaintiff made application for the release of his salary
Opinion of the Court
for 1937, but the Czech National Bank refused and asked for proof as to the plaintiff's citizenship and how long he had been permanently residing in Switzerland.
In his claim for refund filed with the Commissioner of Internal Revenue on September 23, 1942, the plaintiff claimed the deduction here claimed, under the terms of section 127 of the Internal Revenue Code, 26 U. S. C. 127, which provides in part as follows:
$127. WAR LOSSES-(a) CASES IN WHICH LOSS DEEMED SUSTAINED, AND TIME DEEMED SUSTAINED
For the purposes of this chapter-* * *
(2) PROPERTY IN ENEMY COUNTRIES.-Property within any country at war with the United States, or within an area under the control of any such country on the date war with such country was declared by the United States, shall be deemed to have been destroyed or seized on the date war with such country was declared by the United States.
War with Germany was declared on December 11, 1941, and under the terms of this section the plaintiff contends that he is entitled to a deduction for the year 1941 in an amount equal to the value of his property which remained in Germany and Czechoslovakia. Defendant contends that the plaintiff did not own the property on the date of our declaration of war on Germany or if he did that he has failed to prove the value thereof as of that date. Plaintiff's claim for refund filed with the Commissioner of Internal Revenue was based entirely on this section.
Under this section the taxpayer as a prerequisite to claiming a loss must show ownership of the property involved on the date of declaration of war. Here that date is December 11, 1941. The Treasury Regulation 26 CFR 29.127 (a)-1, chap. 1, p. 494 (1949 Ed.), issued under this section, provides in part as follows:
*** for the taxpayer to claim a loss with respect to such property he must own such property or an interest therein at such time. If before such time, the property was destroyed or confiscated, Section 127 is not applicable with respect to such property. For example, a taxpayer owned property in an enemy country before war was declared on such enemy by the U. S., and such property was confiscated by the enemy before the date war
Opinion of the Court
126 C. Cls.
was declared. The seizure was not in the course of military or naval activities. The taxpayer may not claim a war loss with respect to such property under section 127.
The question is one as to whether on December 11, 1941, the plaintiff owned the property here involved within the meaning of Section 127. Adler v. Commissioner, 8 T. C. 726, A tax deduction is a matter of legislative grant and to be entitled thereto the taxpayer must bring himself clearly within the provisions allowing the deduction.
On November 25, 1941, the German Government under the authority of paragraph three of the Reich Citizen Law of September 15, 1935 (Reich Law Gazette Part I), issued its "Eleventh Executive Order" entitled "First Decree Relating to the Reich Citizen Law of November 25, 1941," which provided in part as follows:
Paragraph 1. No Jew who has his regular residence abroad can be a German national. Regular residence abroad exists when a Jew resides abroad under circumstances permitting of the recognition that he is staying there not temporarily.
Paragraph 2. A Jew shall lose German nationality: (a) If at the time this decree becomes effective he has his regular residence abroad, with the becoming effective of this decree; ***
Paragraph 3. (1) The property of the Jew who loses German nationality by virtue of this decree shall with the loss of nationality become forfeit to the Reich. ***
Paragraph 12. The decree applies also to the Protectorate of Bohemia and Moravia and in the annexed Eastern Territories.
The plaintiff is of Jewish descent and the property here involved was located in Germany and in that part of Czechoslovakia known as Bohemia. He entered the United States as a German national in 1939 with the intention of residing here permanently, which he has done. In his testimony plaintiff stated that he lost his German nationality under the November 25, 1941, decree.
The November 25, 1941, decree was one of several directed at Germans of Jewish descent during the late thirties. (See Findings 25 and 26.) During this period it had become exceedingly difficult for them to deal with their property
Opinion of the Court
because of these decrees. In 1938 the plaintiff, while then residing in Switzerland, was unsuccessful in his efforts to remove the house furnishings from Czechoslovakia because of the directives of the Hitler regime. He met with the same result during that same year in an effort to remove money from the Czech National Bank in Czechoslovakia.
In the light of this decree and its applicability to those who found themselves in the situation in which the plaintiff here found himself, can it be said that the plaintiff retained a sufficient interest in the property involved so that on December 11, 1941, he could sustain a loss under the provisions of section 127? The defendant contends that he did not. We agree with that contention. The test which must be adopted in determining "sufficient interest" is a practical one. This identical question as to the nature of the test under section 127 was before the court in Rozenfeld v. Commissioner, 181 F.2d 388, 390, where the court stated:
*** We understand from this that the test is a practical one, and does not depend upon an absolute forfeiture of all legal right. *** The revelant consideration, as we understand the Supreme Court [referring to United States v. White Dental Co., 274 U. S. 398], is not the legal consequences of the seizure, but how completely the owner is dispossessed; i. e., the remoteness of any recovery of the property or its proceeds.
In the White Dental case, supra, a deduction for the loss of property sequestered by the German government in 1917 was allowed even though it appeared that legal title remained with the taxpayer, since the possibility of his ever regaining the property was purely conjectural because of the hazards and uncertainties of war. We believe this to be the correct test. In applying this test to the instant case, we hold that the decree of November 25, 1941, so voided any control which the plaintiff might have exercised over his property that on December 11, 1941, he had nothing to lose with respect to the property here involved which had not already been lost.
While his claim for refund filed with the Commissioner of Internal Revenue was based solely on the grounds above discussed, the plaintiff in his suit here has included an alternative ground for recovery under section 23 (e) (3) of Title 26, U. S. C. (1946 Ed.). This section provides for the deduc
Opinion of the Court
126 C. Cls.
tion of losses "of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft." Plaintiff asserts that if the decree of November 25, 1941, resulted in the loss of the property involved here then he is still entitled to a deduction for the year 1941 under the terms of this section.* Defendant contends (1) that having failed to assert this basis for recovery in his claim for refund filed with the Commissioner, the plaintiff may not rely on this section in his suit here, and (2) that even if consideration is given here to his claim under section 23 (e), the nature of the loss sustained is not one which comes within the meaning of "or other casualty" as used in this section.
Section 322 of the Internal Revenue Code, 26 U. S. C. (1946 Ed.) § 322, sets forth the provisions which govern the filing for a tax refund. The Treasury Regulation 26 CFR 29.322-3 (b), chap. 1, p. 630 (1949 Ed.), issued thereunder, reads in part as follows:
*** The claim must set forth in detail and under oath each ground upon which a refund is claimed, and facts sufficient to apprise the Commissioner of the basis thereof. [Italics supplied.]
This or similar worded regulations have long been in existence under section 322, and the courts, in the desire to further settlement within the Treasury Department whenever possible, have ruled that such statutory prerequisites must first be met before resort to court action may be had. The question involved here was before the court in Real Estate Title Co. v. United States, 309 U. S. 13. In the Real Estate case the taxpayer had filed his claim with the commissioner based solely on section 23 (k) which provided for a deduction for obsolescence. The property involved there was a title plant which the taxpayer had ceased to use during the taxable year. In the suit which followed the commissioner's rejection of the refund, the taxpayer included an alternative ground of recovery under section 23 (f) which allows a corporation to deduct "losses sustained during the taxable year and not compensated for by insurance or otherwise." The court after having decided that no
*Modified. See opinion of October 6, 1953, infra.