Where’s My Luggage?

The tax consequences of losing your luggage.

McBrayer v. Commissioner, T.C. Memo. 1999-360 (1999)

Ministers and lay church employees often travel on church-related business. What are the tax consequences associated with a loss of one’s luggage while traveling on a business trip? The Tax Court addressed this question in a case.

A teacher claimed a Schedule C expense deduction in the amount of $530 for luggage that she claimed had been stolen while she was using a restroom at Reagan National Airport. The only evidence she produced in support of the deduction were receipts for two pieces of replacement luggage she purchased shortly after the loss. The IRS denied the deduction, and the Tax Court agreed. The court concluded that no loss deduction was available, for the following three reasons:

(1) The teacher failed to establish that her luggage had been stolen. The court noted that “to be entitled to a [loss] deduction a taxpayer is required to substantiate the deduction through the maintenance of books and records or other sufficient evidence.” It acknowledged that the teacher had provided the court with receipts for two pieces of replacement luggage, but concluded that this did not constitute sufficient substantiation of the loss. It concluded: “It is well settled that we are not required to accept petitioner’s self-serving testimony in the absence of corroborating evidence. [The teacher] failed to submit corroborating evidence, such as a police report. Such evidence would have been helpful in establishing the items stolen and the date of the theft.”

(2) The teacher failed to prove the amount of the loss. The court pointed out that she failed to substantiate the amount of the loss by documenting the “adjusted basis” of the lost luggage. In general, the first step in determining amount of a theft loss is to compute the property’s adjusted basis. This amount is the original cost of the property, with certain adjustments. Since the teacher failed to produce any evidence as to the original cost of her luggage, she failed to adequately substantiate her loss.

(3) The teacher failed to prove that the loss was not compensated for by insurance. A taxpayer must demonstrate that a loss was not covered by insurance.

What can church treasurers do to help? If a minister or lay church employee experiences a theft of personal property, here are some suggestions you can make soon after the loss to increase the likelihood of a loss deduction:

  • Encourage the pastor or lay employee to immediately file a police report. As the Tax Court noted, this will help to substantiate that the property in fact was stolen, and the date of the loss.
  • Encourage the pastor or lay employee to locate records substantiating the cost of the stolen property. This evidence will be required in order to support a loss deduction.

Key point. Even if all the required records are maintained, a loss deduction is subject to additional limitations. To illustrate, the amount of each loss (adjusted basis) must be reduced by $100, and total theft losses must be reduced by 10% of adjusted gross income (this rule is applied after the $100 reduction for each loss).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay