22 T.C. 850">*850 The Commissioner determined a deficiency in income tax for 1945 in the amount of $ 10,503.08. 1954 U.S. Tax Ct. LEXIS 162">*164 The petitioners do not contest certain adjustments. The issue to be decided is whether the petitioners' decedent sustained a loss in 1945 of his undivided interest in improved real estate located in Naumburg, Germany. Deduction of the alleged loss is claimed under section 23 (e) (2), Internal Revenue Code. The amount of the loss claimed originally, in the taxpayer's return, was $ 13,500. The amount of the loss now claimed is $ 9,561.60.

22 T.C. 850">*851 FINDINGS OF FACT.

The facts which have been stipulated are found accordingly. The stipulation of facts is incorporated herein by this reference.

The petitioners are the duly appointed executors of the estate of Wladimir Von Dattan, deceased, who is referred to hereinafter as either the taxpayer or W. Von Dattan.

The taxpayer's return for 1945 was filed with the collector for the district of Massachusetts.

W. Von Dattan was born in Germany in 1906. He left Germany in 1930. He became a resident of Massachusetts in 1932. He became a naturalized citizen of the United States in 1937. He died, a resident of Massachusetts, on August 20, 1950.

Upon the death of both of the parents of W. Von Dattan in 1924, in Germany, W. Von Dattan inherited1954 U.S. Tax Ct. LEXIS 162">*165 from his parents an undivided one-fifth interest in improved real estate located in Naumburg, Germany. Each of the taxpayer's four brothers and sisters also inherited undivided one-fifth interests in the property. The property is the subject of the issue in this proceeding. Title to the Naumburg property was held by the taxpayer's brother George Dattan in 1924 and thereafter at all times material in this proceeding. In 1924, George Dattan acknowledged that he held title to the property for the benefit of himself and his brothers and sisters, namely, Paul Dattan, W. Von Dattan (the taxpayer), Marie (Dattan) Hortschansky, and Elizabeth (Dattan) Bernecker; and the property was recorded in the Registry of Real Estate in Naumburg in the name of George Von Dattan "for himself, and the Sisters and Brothers Dattan."

The aggregate and total fair market value of the improved real estate in 1924, at the time of the death of the taxpayer's father, was $ 75,000, allocated $ 15,000 to the land, which was about 4 acres, and $ 60,000 to 4 buildings (3 houses and 1 stable and garage, all of brick construction).

The buildings located on the realty in question are known as No. 12 Wenzelspromenade1954 U.S. Tax Ct. LEXIS 162">*166 (a building 3 stories high, containing 29 rooms plus 5 servants' rooms); No. 1 Burgergartenpromenade (a duplex house containing 10 rooms plus 3 servants' rooms); No. 1 Koernerstrasse (a house containing from 8 to 10 rooms, originally used for servants); and a stable and garage. The property was located in the best residential section of Naumburg.

Since the death of the taxpayer's father in 1924, the house known as No. 12 Wenzelspromenade has been rented. It was divided into apartments. The houses known as No. 1 Burgergartenpromenade and No. 1 Koernerstrasse also were rented.

Hallescher Bankverein was a German bank, hereinafter called Hallescher Bank, located in Naumburg. It carried on operations 22 T.C. 850">*852 throughout the war (World War II) until August 15, 1945. At that date, the bank was in the Russian occupied zone and the Russian governmental administration closed all banks, establishing in their place the LandeskreditbankSachsen-Anhalt with the main office in Halle, Saale.

In 1930 and during the following years until it was closed in August 1945, the Naumburg property was managed for the Dattan heirs (the taxpayer and his brothers and sisters) by the Hallescher Bank, through1954 U.S. Tax Ct. LEXIS 162">*167 its employees, which collected the rents and paid the taxes and all charges. The bank would credit each of the five heirs with a proportionate share of the rents and would charge each with a proportionate share of expenses.

W. Von Dattan has never received any income from the Naumburg property since his departure from Germany in 1930. In 1930, the Government of Germany placed restrictions on the transfer of funds from Germany to foreign countries; that is to say funds were blocked. However, as late as January 31, 1938, the taxpayer received a statement of his account for rents collected and charges against rents from the Hallescher Bank.

The United States declared war on Germany on December 11, 1941. An armistice was signed by the United States, Germany, and Russia on May 9, 1945. The First Army of the United States occupied Naumburg in April 1945, and continued the occupation until some time in July 1945, when it withdrew pursuant to agreement between the United States and Russia. Thereafter, at some time between July 1, 1945, and August 15, 1945, occupation of Naumburg by the Russian forces took place. Occupation by Russia continued throughout the remainder of 1945, and has1954 U.S. Tax Ct. LEXIS 162">*168 continued to the present time. Naumburg is in the occupied Russian Zone of Germany.

The Naumburg property which is in question was managed prior to and during the war by various employees of the Hallescher Bank, and from the beginning of the war by Richard Hertel and Curt Zschernitz. After the occupation of Naumburg by the Russians, the administration of the property was put in the hands of one Vonhoff, who as late as January 24, 1949, collected the rents and deposited them in an account in a branch of the Landeskreditbank.

Rudolf Mueller, a former employee of the Hallescher Bank advised the taxpayer in two letters dated January 24, 1949, written in Naumburg where he resided in 1949, that Vonhoff was still administering the Naumburg property as of the above date and collected the rents and deposited them in a branch of the Landeskreditbank; and the property was not damaged during or after the war. Mueller also advised the taxpayer that since the Hallescher Bank had been closed on August 15, 1945, all accounts and deposits had been blocked, and that the Landeskreditbank had taken the place of Hallescher Bank, and 22 T.C. 850">*853 that W. Von Dattan would have to write to the successor 1954 U.S. Tax Ct. LEXIS 162">*169 bank to obtain information about his accounts and deposits in the former Hallescher Bank. Mueller also advised W. Von Dattan as follows:

First you have to prove that you have been an American citizen before May 9th 1945 without having had at that time your former German citizenship. This has to be done at the American Military Mission at Berlin, then they have to get in touch with the Landeskreditbank Saschen-Anhalt in Halle-Saale and make application that they will give you information about your account and depots [sic] at the former Halleschen [sic] Bankverein Filiale Naumburg/Saale. They also will have to give information about the foreign accounts which were existing at that time. These accounts and depots [sic] will then be transferred to the so called new accounting. According to the present regulations only such foreigners are allowed to have control over money and securities who have their permanent domicile in Germany.

As of February 26, 1947, the authorities of the Russian occupation of Naumburg had not done anything that affected the title of the Dattan heirs, including W. Von Dattan, in the Naumburg property, and had not confiscated or seized the1954 U.S. Tax Ct. LEXIS 162">*170 property. On that date, W. Von Dattan's sisters, Marie and Elizabeth, who resided in Hamburg, Germany, executed a joint affidavit in which they stated, inter alia, with respect to the ownership of the property, as follows:

These properties are still today, registered in the registry of real estate in Naumburg-Saale in the name of George von Dattan, for himself and the Sisters and Brothers Dattan, therefore, is our Brother Wladimir von Dattan, Chestnut St., Lunenburg, Massachusetts, U. S. A. the owner of one fifth (1/5) of these properties. The income and expenses of these properties have been charged to one fifth (1/5) of each [sic] of the Brothers and Sisters.

The properties are situated in the occupied Russian Zone. The value of these properties is impossible to state due to the unsettled economical [sic] situation in that territory.

The taxpayer did not take a deduction in his return for 1941 for a war loss under section 127 (a) (2) of the Internal Revenue Code for loss of the Naumburg property from seizure or destruction.

In his return for 1945, the taxpayer took a deduction of $ 13,500 as a casualty loss (section 23 (e) (3) of the Code) and gave the following1954 U.S. Tax Ct. LEXIS 162">*171 explanation: "Apartment house in Naumburg, Germany, destroyed by Russian Army in June 1945." Upon audit of the return for 1945, it was disclosed to an agent of the Commissioner that the property was not destroyed by the Russian Army in June of 1945. Also, a claim was made on behalf of the taxpayer for a loss deduction on the basis of the occupation of Naumburg by the Russians and the consequent lack of control by the taxpayer.

The taxpayer filed a protective claim with the Commissioner on Form 843, serial No. 3164388, on November 4, 1946, for the year 1941, which was timely because he had been in the armed forces from September 1943 to November 1945, based on the alleged loss of the Naumburg property.

22 T.C. 850">*854 On December 10, 1948, the taxpayer's claim for refund for the year 1941 was denied by the Commissioner. Under the same date the Commissioner notified the taxpayer that it was proposed to disallow the deduction in the amount of $ 13,500 claimed in his income tax return for the year 1945, and to assess a deficiency in the amount of $ 10,503.08. The Commissioner gave as a reason for the disallowance of the deduction for the year 1945 the fact that the conditions in respect 1954 U.S. Tax Ct. LEXIS 162">*172 to the property on which the loss was claimed were no different in 1945 than in any year since 1932. The Commissioner gave as a reason for a denial of a refund for the year 1941 the fact that there was no change in the status of the property in the year 1941. Under date of January 8, 1949, the taxpayer filed Form 1291 with the Commissioner indicating that he did not agree with the findings of the revenue agents in disallowing the refund for the year 1941, but that he did not intend to protest these findings.

The explanation in the deficiency notice for 1945 for the disallowance of the deduction of $ 13,500 is as follows:

It has been determined that you are not entitled to the deduction of $ 13,500.00 claimed in your 1945 return for an alleged loss described as "Apartment house in Naumburg, Germany destroyed by Russian Army in June 1945" for the reasons that no such property owned by you or in which you had any interest, was, in fact, destroyed in 1945, and you have not demonstrated that there was any loss in respect of any such property, occurring in 1945, which might have been deductible under any provision of the Internal Revenue Code relating to the deduction of losses.

The parties1954 U.S. Tax Ct. LEXIS 162">*173 have stipulated that as of July 1945, the adjusted basis to Wladimir Von Dattan of a one-fifth interest in the Naumburg real estate owned by him and his four brothers and sisters did not exceed $ 9,561.60.

OPINION.

A loss in 1945 is claimed under section 23 (e) (2) of the Code with respect to W. Von Dattan's property. The petitioners contend that since the improved real property at all times was held for the production of income, the alleged loss of Von Dattan's undivided interest therein was incurred in a transaction entered into for profit which is, therefore, deductible under section 23 (e) (2) of the Code. The petitioners rely chiefly on United States v. S. S. White Dental Mfg. Co., 274 U.S. 398">274 U.S. 398.

The respondent takes the position that the petitioners have failed to establish that Von Dattan sustained any loss in 1945. The respondent argues that section 23 (e) (2) contemplates the deduction only of losses which are fixed by identifiable events occurring in the year in which the loss is claimed, and that, assuming, arguendo, that Von Dattan recovered his interest in the Naumburg property in 1945, the fact that Naumburg was occupied by the1954 U.S. Tax Ct. LEXIS 162">*174 Russians in the latter part 22 T.C. 850">*855 of 1945, in and of itself, is not an identifiable event sufficient to establish the claimed loss.

Von Dattan did not claim a war loss deduction under section 127 (a) (2) of the Code with respect to his interest in the Naumburg property in either his 1941 tax return or in the claim for refund which he filed for 1941. His return for 1941 disclosed net income of $ 3,268.94, and a tax due of $ 166.40. On November 4, 1946, he filed a claim for refund of the tax paid for 1941. The claim was timely since the taxpayer had been in the armed forces of the United States until November 1945. The claim was based on the alleged loss of the Naumburg property, and it contained the allegation that the property was destroyed by the Russian Army in 1945. Upon investigation of the claim for refund, the respondent's agent was advised by the taxpayer's representative that the property was not destroyed by the Russian Army, and that the real basis of the claim was that the property was located in the Russian occupied zone of Germany, and that, therefore, it was no longer subject to the taxpayer's control. In his 1945 tax return, Von Dattan claimed a casualty loss1954 U.S. Tax Ct. LEXIS 162">*175 deduction in the amount of $ 13,500 with respect to the same property and on the same grounds as stated in his claim for refund for 1941.

Respondent denied the claim for refund for 1941 on the grounds that there was no change in the status of the property in that year. He disallowed the casualty loss deduction claimed by Von Dattan in his 1945 return for the reasons that the Naumburg property was not in fact destroyed in 1945, and that the taxpayer had not established that he had sustained any deductible loss with respect to the property in 1945.

The year 1941 is not before us, and we are not advised as to why the taxpayer did not claim a war loss deduction under section 127 (a) (2) of the Code with respect to the Naumburg property in 1941.

The petitioners base their claim for a deduction under section 23 (e) (2) of the Code upon the following: (1) They assume that Von Dattan's one-fifth interest in the Naumburg property is deemed to have been destroyed or seized in 1941 by virtue of the provisions of section 127 (a) (2) of the Code, as they apply to the underlying real property, when the United States declared war on Germany on December 11, 1941. (2) They allege that Von Dattan1954 U.S. Tax Ct. LEXIS 162">*176 recovered his interest in the Naumburg property within the purview of section 127 (c) of the Code on April 19 or 20, 1945, when the American forces captured Naumburg, or, alternatively, on May 9, 1945, when hostilities in Europe ceased and an armistice was signed. (3) They allege that between July 1, 1945, and December 31, 1945, Von Dattan sustained a loss of his interest in the Naumburg property by reason of the withdrawal of the American forces from Naumburg and the occupation of that city by the Russian forces. (4) They assume that 22 T.C. 850">*856 Von Dattan's basis with respect to his undivided interest in the real property in July 1945 was $ 9,561.50. On this point they rely on a stipulation which is set forth in the Findings of Fact.

In considering the issue before us in this proceeding, we shall assume, arguendo, that the underlying real property is deemed to have been destroyed in 1941 on the date war was declared on Germany, and that, therefore, on that date in 1941, Von Dattan lost his undivided interest in the Naumburg real property. It is assumed, also, arguendo, that on December 11, 1941, Von Dattan still owned his interest in the real property. Cf. Ernest Adler, 8 T.C. 726, 731.1954 U.S. Tax Ct. LEXIS 162">*177 See, also, Andrew P. Solt, 19 T.C. 183, 187, and cases cited therein.

The first question is whether Von Dattan recovered his property. In Ervin Kenmore, 18 T.C. 754, 758, affd. 205 F.2d 90, we pointed out the significance of the difference in the wording of subsections (a) and (c) of section 127; that in subsection (c) of section 127 there is no provision to the effect that property, if in existence "'shall be deemed to have been recovered' upon the happening of some event such as the recapture of the country in which the property was located or the end of hostilities with such country." In this case, applying the same reasoning, we cannot regard the capture of Naumburg by the American forces or the execution of the armistice agreement, as bringing about a restoration to Von Dattan of his property.

The petitioners rely upon Andrew P. Solt, supra, on the point that Von Dattan's representatives, acting on behalf of themselves and Von Dattan, "actually re-took possession and control" of the property. The facts here are less positive than they were in the Solt1954 U.S. Tax Ct. LEXIS 162">*178 case. The petitioners argue that since prior to, during, and immediately subsequent to the period of hostilities, the Naumburg property was rented and managed by the Hallescher Bank acting as agent for Von Dattan and the other coowners, it is not necessary for the petitioners to establish any overt act on the part of the owners' symbolic recovery. Petitioners rely on the language of the Court of Appeals in Kenmore v. Commissioner, supra. We need not decide whether petitioners' argument is sound for the reasons set forth hereinafter. We can assume, arguendo, that the owners of the Naumburg property, on behalf of themselves and of Von Dattan, recovered the property in April or May 1945.

The narrow question which must be decided is whether petitioners have proved that thereafter, in 1945, Von Dattan lost his interest in the property. Petitioners contend that he did, for all practical purposes, between July 1 and December 31, 1945, by reason of the withdrawal of the American forces and the occupation of Naumburg by the Russians. The petitioners argue that those facts constitute "identifiable events" which establish the alleged loss adequately for purposes of section 1954 U.S. Tax Ct. LEXIS 162">*179 23 (e) (2). They rely upon 274 U.S. 398">United States v. S. S. 22 T.C. 850">*857 , and Helvering v. Gordon, 134 F.2d 685, affirming 46 B. T. A. 1201. Also, they argue that even though, as late as February 26, 1947, title to the Naumburg property was still listed in the Register of Real Estate in Naumburg-Saale in the name of "George Von Dattan, for himself and the Sisters and Brothers Dattan" as evidenced by the affidavit of W. Von Dattan's two sisters, the mere retention of legal title does not preclude the taking of a loss deduction, if the worthlessness of the property is otherwise satisfactorily established.

In the Solt case, supra, we said:

Moreover, we are also convinced that the property thus recovered was confiscated shortly thereafter by the Provisional National Government of Hungary, on March 15, 1945, * * *

In this case, there is no corresponding fact. We have no evidence here that the Russian occupation officials seized or confiscated the property in Naumburg at any time in 1945, or thereafter. We cannot conclude that the occupation of Naumburg by the Russians1954 U.S. Tax Ct. LEXIS 162">*180 in 1945 in and of itself operated to bring about a loss of the property, or rendered the property valueless.

We agree with the petitioners, of course, that it is well settled that divesture of legal title to property is not essential to the allowance of a loss deduction if, in fact, the worthlessness of the property has been otherwise satisfactorily demonstrated. See Helvering v. Gordon, supra, and cases therein cited.

If we assume, as petitioners want us to do, that there was a recovery of the property in question in 1945, we must next look for evidence of an identifiable event which establishes the subsequent loss in 1945. There is no statutory presumption, such as that provided by section 127 (a) (2), to aid petitioners. Petitioners do not have the assistance, under this question, of section 127 (a) (2), the provisions of which provide relaxation of the burden of proof rule. To date, there is no statutory provision similar to section 127 (a) (2) under which property located in a zone of Russian occupation is deemed to have been lost.

After the Russian occupation of Naumburg, as before, the Naumburg property continued to be managed by the1954 U.S. Tax Ct. LEXIS 162">*181 bank. The property is in existence. There are several possibilities about Von Dattan's interest in the property. One is that the underlying real property could have been sold, or Von Dattan's interest therein could have been sold. There is no proof in this case that Von Dattan in 1945 could not have made a good claim to recover the value of his interest in such event after the Russian occupation; or that even now, Von Dattan's estate could not make such claim in such event.

The fact that Von Dattan did not have access in 1945 to any sums credited to his account at the Hallescher Bank, and the fact that the Landeskreditbank which at the direction of the Russian occupation 22 T.C. 850">*858 authorities took over the business and affairs of the Hallescher Bank are not significant. Due to currency restrictions which have been in effect in Germany since 1930, Van Dattan did not, for many years prior to 1945, receive any income from the Naumburg property. The "blocking" of a bank account of an American citizen does not, in and of itself, prove that a loss is sustained. Cf. International Mortgage & Investment Corporation, 36 B. T. A. 187, 191.

We have carefully1954 U.S. Tax Ct. LEXIS 162">*182 considered the evidence and record before us and conclude that the petitioners have failed to establish the occurrence of any identifiable event in the year 1945 which established the loss of the interest of Von Dattan in the Naumburg property, or rendered it valueless. Deductions are a matter of legislative grace and statutory provisions allowing deductions must be carefully applied. Petitioners have the burden of proving facts which bring the alleged loss within section 23 (e) (2). Ervin Kenmore, supra, p. 761.

It is held that the petitioners have failed to establish that Von Dattan sustained any loss in 1945 with respect to his undivided interest in the Naumburg property within section 23 (e) (2). Because of this holding, it is unnecessary to consider a further contention of the respondent that petitioners have failed to prove the amount of Von Dattan's basis in 1945 for the computation of the amount of the alleged loss. We need not decide whether petitioners have established the amount of the alleged loss.

Decision will be entered for the respondent.