Section 165(a) losses "have been referred to as abandonment losses to reflect that some act is required which evidences an intent to discard or discontinue use permanently." Gulf Oil Corp. v. Comm'r of Internal Revenue, 914 F.2d 396, 402 (3d Cir. 1990) (citing A.J. Indus., Inc. v. United States, 503 F.2d 660 (9th Cir. 1974)). "`[I]n order for a loss of an intangible asset to be sustained and to be deductible, there must be (1) an intention on the part of the owner to abandon the asset, and (2) an affirmative act of abandonment.'"
Where the taxpayer has not relinquished possession of an item there must be a concurrence of the act of abandonment and the intent to abandon, both of which must be shown from the surrounding circumstances, in order to determine if a loss has occurred in the year of the deduction. A.J. Industries, Inc. v. United States, 503 F.2d 660 (9th Cir. 1974); Hummel v. United States, 227 F. Supp. 30 (N.D. Cal. 1963). Mere intention to abandon alone is not sufficient to accomplish abandonment. A.J. Industries, Inc. v. United States, supra.
Where the taxpayer has not relinquished possession of an item there must be a concurrence of the act of abandonment and the intent to abandon, both of which must be shown from the surrounding circumstances, in order to determine if a loss has occurred in the year of the deduction. A.J. Industries, Inc. v. United States, 503 F.2d 660 (9th Cir. 1974); Hummel v. United States, 227 F. Supp. 30 (N.D. Cal. 1963). Mere intention to abandon alone is not sufficient to accomplish abandonment. A.J. Industries, Inc. v. United States, supra.
Whether the district court applied the correct legal standard to evaluate an abandonment loss claim is subject to de novo review. See A.J. Indus., Inc. v. United States , 503 F.2d 660, 662 (9th Cir. 1974). "Where the trial has been by a judge without a jury, the judge's findings must stand unless clearly erroneous."
I.R.C. § 165 losses have been referred to as abandonment losses to reflect that some act is required which evidences an intent to discard or discontinue use permanently. A. J. Industries, Inc. v. United States, 503 F.2d 660 (9th Cir. 1974). "[I]n order for a loss of an intangible asset to be sustained and to be deductible, there must be (1) an intention on the part of the owner to abandon the asset, and (2) an affirmative act of abandonment."
Taxpayer adds that he relied on their earlier positions. In support of this proposition, Taxpayer cites Commissioner v. Hoffman, 117 F.2d 987 (2d Cir. 1941); A.J. Industries v. United States, 503 F.2d 660 (9th Cir. 1974); Blum v. Commissioner, 133 F.2d 447, 448 (2d Cir. 1943); Bickerstaff v. Commissioner, 128 F.2d 366 (5th Cir. 1942); Helvering v. Gordon, 134 F.2d 685 (4th Cir. 1943); Denman v. Brumback, 58 F.2d 128 (6th Cir. 1932). We point out that in these cases — except for Blum — the issue was not whether an abandonment is a "sale or exchange" for determining whether the loss is capital or ordinary.
“An abandonment loss is deductible if evidenced by a closed and completed transaction that is fixed by an identifiable event occurring in the year of the claimed loss, but only if the taxpayer shows both an intention to abandon the asset in question and an affirmative act of abandonment.” Lapin v. Comm'r, 956 F.2d 1167 (9th Cir.1992) (citing A.J. Indus., Inc. v. United States, 503 F.2d 660, 670–71 (9th Cir.1974)). Thus, Plaintiff must show through the surrounding facts and circumstances (1) that Home intended to abandon the Missouri Branching Right and (2) that Home performed an overt act of abandonment.
The subjective determination of the taxpayer, while not conclusive, is entitled to great weight. Id. at 708; A.J. Indus., Inc. v. United States, 503 F.2d 660, 670 (9th Cir. 1974) ("The subjective judgment of the taxpayer (here the management) as to whether the business assets will in the future have value is entitled to great weight and a court is not justified in substituting its business judgment for a reasonable, well-founded judgment of the taxpayer."); Oak Harbor Freight Lines, Inc. v. Commissioner, T.C. Memo. 1999-291, 1999 WL 680132, at *2-*3 (citing Echols II, 950 F.2d 209, and A.J. Indus., Inc., 503 F.2d 660). In Echols I, 935 F.2d at 708, the court emphasized the discretion a taxpayer has in claiming a loss deduction under section 165(a) for a worthless partnership interest:
To be entitled to deduct an abandonment loss under section 165, a taxpayer must show: (1) An intention on the part of the owner to abandon the asset, and (2) an affirmative act of abandonment. United States v. S.S. White Dental Manufacturing Co., 274 U.S. 398 (1927); A. J. Industries, Inc. v. United States, 503 F.2d 660, 670 (9th Cir. 1974); CRST, Inc. v. Commissioner, 92 T.C. 1249, 1257 (1989), affd. 909 F.2d 1146 (8th Cir. 1990). In determining a taxpayer's intent to abandon, the “subjective judgment of the taxpayer * * * as to whether the business assets will in the future have value is entitled to great weight and a court is not justified in substituting its business judgment for a reasonable, well-founded judgment of the taxpayer.”
Sustained losses deductible under this section have commonly been referred to as abandonment losses to reflect the requirement of an act that evidences an intent to discontinue use or permanently discard nondepreciable property. A.J. Industries, Inc. v. United States, 503 F.2d 660 (9th Cir. 1974). The act of abandonment determines the timing of the deduction for abandonment losses, and not the character of the loss.