Hidalgo Steel Co. v. Commissioner , 8 B.T.A. 76 ( 1927 )

OPINION.

Milliken:

We have had occasion, previously, to consider the question relative to losses arising out of the breach of a contract, and it is well settled that if the liability was not admitted, or an offer in settlement was not made, or the estimated amount of the loss was not entered on the books for the taxable year, a deduction of the loss in the year when the breach occurred, was unallowable. Appeal of Brighton Mills, 1 B. T. A. 392; Appeal of New Process Cork Co., 3 B. T. A. 1339; Appeal of Bump Confectionery Co., 4 B. T. A. 50; Appeal of Hamler Coal Co., 4 B. T. A. 947. Where admission of the liability was made, and the amount of an estimated loss accrued upon the books, however, a deduction was allowable in the year of the breach. Appeal of Producers Fuel Co., 1 B. T. A. 202; Raleigh Smokeless Fuel Co. v. Commissioner, 6 B. T. A. 381. The issue in the instant case, therefore, rests upon the relation of the evidence adduced to the above principles discussed fully in the opinions cited. After a careful consideration of the record, we are satisfied that the petitioner was fully advised of the probability of loss and that a reserve amounting to $4,000 was actually entered upon the books at the end of the year 1920, but we are unable to find that petitioner ever admitted to the other party its liability or made any offer of a specific sum in discharge thereof. Indeed, it carried its denial of liability based upon pleading the statute of frauds, to the very close of the trial, which occurred in 1923. The record is replete with letters received by petitioner from the New York Oversea Co. throughout the year 1920, demanding performance under the contract or requesting authority to purchase tin plate in the open market, but there is no evidence of a reply from petitioner admitting the liability or making any move in settlement thereof. We are, therefore, of opinion that the reserve is not deductible in 1920, and the respondent is sustained.

Reviewed by the Board.

* Judgment will be entered for the respondent.