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. 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
it and he may return it before there is discovery. Furthermore, the terms embezzlement and loss are not synonymous. The theft occurs, but whether there is a loss may remain uncertain. One whose funds have been embezzled may pursue the wrongdoer and recover his property wholly or in part. See Commissioner v. Wilcox, 327 U.S. 404. Events in the Alison case show the practical value of this right of recovery. A substantial proportion of the embezzled funds was recovered in 1941, ten years after the first embezzlement occurred. This recovery alone is ample refutation of the view that a loss is inevitably "sustained" at the very time an embezzlement is committed.
Whether and when a deductible loss results from an embezzlement is a factual question, a practical one to be decided according to surrounding circumstances. See Boehm v. Commissioner, 326 U.S. 287. An inflexible rule is not needed; the statute does not compel it. For years the Treasury has administered the tax law under regulations saying that deductions shall "ordinarily" be taken in the year of embezzlement. Ordinarily does not mean always.
We hold that the special factual circumstances found by the District Courts in both these cases justify deductions under I. R. C., §§ 23 (e) and (f) and the long-standing Treasury Regulations applicable to embezzlement losses. See Boston Consolidated Gas Co. v. Commissioner, 128 F.2d 473; Gwinn Bros. & Co. v. Commissioner, 7 T. C. 320. Accordingly, the judgment in No. 79 is reversed and the judgment in No. 80 is affirmed.
It is so ordered.
MR. JUSTICE DOUGLAS and MR. JUSTICE BURTON dissent.
97 F.Supp. 959, reversed; 98 F.Supp. 252, affirmed.
* Together with No. 80, United States v. Stevenson-Chislett, Inc., also on certificate from the same court.