Deductibility of Ransom Money Paid for a Kidnapped Person

March 7, 1967 BIR RULING NO. 014-67 2nd Indorsement Returned to the Regional Director, Regional District No. 2, Tuguegarao, Cagayan, the attached papers relative to the Communication of the Chief Revenue Officer of Isabela dated May 20, 1964, with the information that the amount paid by way of ransom for the release of a kidnapped person is not a deductible expense under the National Internal Revenue Code. cdi Under Section 30(a) of the Tax Code only expenses paid or incurred during the taxable year in carrying on any trade or business are deductible. In order to be classified as a trade or business, activities must be carried on for profit or potential profit. (par. 11, 014, P.H. 1963) Undoubtedly, the purpose of an individual in paying ransom money is to secure his safe return or to prevent any harm from being inflicted on him and has nothing to do whatever with profit making. Ransom money is likewise not deductible as a loss under Section 30(d) of the Tax Code which provides as follows: "(d) Losses (1) By individuals . In the case of an individual, losses actually sustained during the taxable year and not compensated for by insurance or otherwise (A) If incurred in trade or business; or (B) If incurred in any transaction entered into for profit, though not connected with the trade or business; or (C) Of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from robbery, theft, or embezzlement. Like deductions for business expense, activities contemplated under sub-paragraphs (A) an (B) must be carried on for profit. As already explained the activity of paying ransom money is not a transaction entered into for profit. Losses arising from kidnapping is not one of those enumerated under sub-paragraph (C) and under the principle of Expressio Unius est Exclusio Alterius , the same is not deductible. In one case (Samuel Towers, 24 TC 199) decided by the U.S. Tax Court, money given to extortionists were held to be a non-deductible loss since the law at the time did not include losses arising from extortion as one of the deductible losses. Deductions are a matter of legislative grace and the taxpayer in every instance has the burden of justifying the allowance for any deduction claimed. Only those exemptions and deductions as the statute provides may be had by the taxpayer. (par. 20, 131, Mertens, Vol. 4) aisadc (SGD.) MISAEL P. VERA Commissioner of Internal Revenue