[1] Carpenter v. Commissioner addressed the issue of whether a husband and wife could deduct the aggregate fair market value of the wife’s engagement ring from their income tax return, as a casualty loss under §165(a) and (c)(3) of the Internal Revenue Code of 1954,[2] after the husband inadvertently dropped the ring in their garbage disposal.

William proceeded to run the garbage disposal, which ultimately damaged Nancy’s ring.

[2] The court held that the petitioners were correct in deducting the aggregate fair market value of the ring from their income tax return as a casualty loss under §165(a) and (c)(3) of the Internal Revenue Code of 1954.

Therefore, the court concluded that William placed the original ring in the garbage disposal accidentally.

The court further explained that William merely made another gift to Nancy, as an act of repentance or contrition, and not as a compensatory action.