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 Rev. Rul. 65-87

1965-1 C.B. 111

Full Text

Rev. Rul. 65-87 /1/

Section 165(i) of the Internal Revenue Code of 1954 as added by section 238 of the Revenue Act of 1964, Public Law 88-272, C.B. 1964-1 (Part 2), 6, and amended by section 3 of the Excise-Tax Rate Extension Act of 1964, Public Law 88-348, C.B. 1964-2, 594, provides that in the case of an individual who was a citizen of the United States or a resident alien on December 31, 1958, any loss of property (not used in a trade or business or for income-producing purposes) resulting from expropriation, intervention, seizure, or similar taking by the Government of Cuba, any political subdivision thereof, or any agency or instrumentality of the foregoing, is treated as a loss from a casualty within the meaning of section 165(c)(3) of the Code, relating to limitation on losses of individuals. Except in the case of intangible property, the expropriated property must have been held by the taxpayer and located in Cuba on December 31, 1958. In the case of a Cuban expropriation loss of property used in a trade or business or for income-producing purposes, the deductibility of such loss is not affected by section 165(i) of the Code but continues to be governed by the rules provided in sections 165(a) and 166 of the Code. See Revenue Ruling 62-197, C.B. 1962-2, 66.

A loss described in section 165(i) of the Code is treated as having been sustained on October 14, 1960, unless it is established that the loss was sustained on some other day. In determining the amount of the loss described in section 165(i) of the Code to be taken into account for purposes of section 165(a) of the Code, it is necessary to determine the fair market value of the property immediately before the time when the loss is sustained. For this purpose, section 165(i) of the Code provides that if property was held by an individual taxpayer on December 31, 1958, the fair market value of the property on that date shall be used. However, in the case of intangible property acquired by an individual after December 31, 1958, the fair market value of such property immediately before the time when the loss is sustained is its fair market value at such time. The fair market value of any expropriated property immediately after the time when the loss is sustained shall be considered to be zero. Of course, the amount of the loss subject to section 165 of the Code may not exceed the adjusted basis of the property.

Where amounts on deposit with a bank were stated in currency other than United States currency, it is necessary, in order to determine the amount of the loss, to convert such deposits to United States currency. Any amount on deposit which is expropriated will, to the extent that such amount does not exceed the amount on deposit on December 31, 1958, be deemed to be on deposit and held on December 31, 1958, and the amount of the loss with respect to that amount will be determined by using the rate of exchange on such date. The amount of the loss in respect of the excess (the amount expropriated over the amount on deposit on December 31, 1958) is determined by using the exchange rate on the day that the loss in sustained which, unless otherwise established, is October 14, 1960.

The 3-year carryback and 5-year carryover rules as provided for in section 172 of the Code which are applicable in the case of section 165(c)(3) casualty losses, apply to section 165(i) expropriation losses. However, the special 10-year carryover for a foreign expropriation loss as defined in section 172(k) of the Code is not applicable for a loss within the meaning of section 165(i) of the Code.

In any case where the statutory period of limitation has expired, refund or credit of any overpayment of tax attributable to the application of section 165(i) of the Code may nevertheless be made or allowed if claim therefor was filed before January 1, 1965. No interest may be allowed to the taxpayer on any overpayment of tax for any period before February 26, 1964.

Section 165(i) of the Code applies in respect of losses sustained as the result of Cuban expropriations occurring before January 1, 1964, in taxable years ending after December 31, 1958.

/1/ Based on Technical Information Release 655, dated Nov. 27, 1964.