Appeal of North Wayne Tool Co. , 2 B.T.A. 366 ( 1925 )

OPINION.

Morris:

The taxpayer contends that the accrued interest on $32,-526.24 up to June 30, 1916, amounting to $6,524.22 and paid on December 21, 1917, is deductible as a loss in its return for the fiscal year ended June 30, 1917. If such amount is deductible it must be under section 12(a) Third of the Revenue Act of 1916, as amended by section 1207 of the Revenue Act of 1917, which provides that the net income of a corporation shall be ascertained by deducting from its gross income the amount of interest paid within the year on its indebtedness. The interest in question was neither paid nor accrued during the fiscal year 1917. Although paid December 21, 1917, it is not deductible for the fiscal year 1918 as the taxpayer’s books were kept and its returns rendered on an accrual basis. Section 234(a) (2) of the Revenue Act of 1918 provides for the deduction of interest “ paid or accrued ” within the taxable year, and those words are to be construed under section 200 of the Act, according to the method of accounting upon the basis of which the net income is computed under section 212. This Board has also held in the Appeal of Tel-Electric Co., 1 B. T. A. 434, that where the taxpayer’s books are kept and its returns are rendered.on an accrual basis, interest which accrued and became a liability in years prior to 1917 can not be deducted from the gross income of 1917 although paid in that year.