Hayes v. Commissioner , 17 B.T.A. 86 ( 1929 )

C. B. HAYES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Hayes v. Commissioner

Docket No. 22473.

United States Board of Tax Appeals

17 B.T.A. 86; 1929 BTA LEXIS 2360;

August 6, 1929, Promulgated

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F. C. Goddard, Esq., and E. S. Kochersperger, Esq., for the petitioner.

C. H. Curl, Esq., for the respondent.

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PHILLIPS

The Commissioner having determined a deficiency in income tax for 1923, the petitioner instituted this proceeding. The petition alleges in substance that the Commissioner erred in holding that a deduction of $22,135.75, taken by the taxpayer upon his income-tax return for 1923 as a debt ascertained to be worthless and charged off in that year, was not proper.

FINDINGS OF FACT.

Prior to March 1, 1923, the National Union Bank of Jackson, Mich., of which the petitioner was a director, had made certain loans to Donald Ganiard, the son-in-law of the petitioner. As a director, petitioner had known that these loans were being made to Ganiard. There were also other loans made to Ganiard by the Farmers State bank of concord, Mich. These loans were secured by a mortgage upon the home of the son-in-law, by a substantial amount of stock held as collateral, and by bonds of the par value of $13,000. Prior to March 1, 1923, Ganiard suffered a nervous breakdown. The value of the collateral held by the banks had depreciated and petitioner was urged by the officers of the banks to take over the obligations of Ganiard. He found that the bonds which were deposited as collateral were the property of the widowed mother of Ganiard. On March 1, 1923, the petitioner gave to the National Union Bank his note for $38,173.65 which was secured by the stock which had previously been deposited by Ganiard. The bonds were returned to the mother by Ganiard. Payments were made on this note from time to time and the note fully paid on March 28, 1924. On March 16, 1923, the petitioner took Ganiard's note for $22,135.75, payable 90 days after date without interest. He claimed the amount of this note as a deduction in his income-tax return for 1923. The Commissioner refused to allow the deduction.

OPINION.

PHILLIPS: The evidence in this case, taken by deposition, is most unsatisfactory. The record leaves the impression that testimony was given without serious consideration to the statements made, resulting in several contradictions. Such a situation necessarily casts doubt upon the accuracy of all of such testimony, even though we are of the opinion that such contradictions were due to carelessness or confusion and to no intention to mislead. Because of that situation, we have deemed it impossible to make all of the findings of fact requested by counsel for the petitioner, many of which might have been justified under other circumstances.

It is by no means clear that petitioner ever expected to enforce the note which he took from his son-in-law. That his motives were in part charitable, is shown by his act in returning to Ganiard's mother the bonds which she had loaned her son for collateral. If there was no intention to enforce the note, or if there was no reasonable expectation when given that it would be paid, the transaction was more in the nature of a gift to the son-in-law than a debt. It is true that a note was given which was legally enforcible. But a gift may not be claimed as a deduction for tax purposes by the device of taking a note for the amount of the gift. And this we deem so, even though the note may be legally enforcible, if there is no intent to enforce the note or reason to believe when taken that it can not be collected.

But if, in the instant case, it could be conceded that this was such an indebtedness that a deduction might be taken if ascertained to be worthless, the record is insufficient to establish any ascertainment of worthlessness. Apparently the note was worth as much at the close of the year as when taken.

Decision will be entered for the respondent under Rule 50.