Shaw v. Commissioner , 9 B.T.A. 459 ( 1927 )

GUTHRIE SHAW, EXECUTOR, ESTATE OF JAMES G. SHAW, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Shaw v. Commissioner

Docket No. 9644.

United States Board of Tax Appeals

9 B.T.A. 459; 1927 BTA LEXIS 2587;

December 1, 1927, Promulgated

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BAD DEBT. - Where decedent a few days prior to his death in 1920, in going over his business affairs with his son, stated that all money matters with one Stanford were a total loss to him (decedent) and could be forgotten and where decedent kept no personal books of account, held, the debt was ascertained to be worthless and in effect charged off during 1920.

G. N. Nelson, Esq., for the petitioner.

L. C. Mitchell, Esq., for the respondent.

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TRUSSELL

This proceeding is for the redetermination of a deficiency in the decedent's income taxes for the year 1920 in the amount of $6,710.47 as asserted by the Commissioner.

The petition alleges that the Commissioner erred in disallowing as deductions from decedent's gross income for the year 1920, (1) the sum of $14,500 as a loss sustained by reason of a bad debt, and (2) the sum of $1,569.41 as a loss sustained on account of certain adjustments of stock transactions. At the hearing on this proceeding, the second allegation of error was waived by petitioner.

FINDINGS OF FACT.

Guthrie Shaw is the duly appointed executor of the estate of James G. Shaw, Jr., deceased. The said decedent died on December 28, 1920.

The decedent had been for many years a very close friend of Richard Stanford, who in 1917 engaged in an enterprise known as the Southern Motor & Truck Co., Inc. of New Orleans. In that year the decedent advanced $14,500 to the said corporation and took three promissory notes executed by Richard Stanford as president of the corporation. One note for $10,000 was executed on September 15, 1917, and became due and payable to decedent one year from date; one note for $3,000 was executed on September 15, 1917, and became due and payable to decedent two years from date; and one note for $1,500 was executed on October 2, 1917, and became due and payable to decedent twenty-three months from date. These notes have never been paid.

On September 9, 1919, the Southern Motor & Truck Co., Inc., was adjudged bankrupt by the Referee in Bankruptcy of the District Court of the United States, Eastern District of Louisiana, New Orleans Division. A receiver was appointed to liquidate the said corporation.

In the latter part of December, 1920, the decedent was about to go to a hospital for an operation and had a general talk with his son, Guthrie Shaw, as to his business affairs. Decedent said that any money matters with Dick Stanford were a total loss to him (decedent) and that they could be forgotten. Decedent kept no personal books of account.

Guthrie Shaw, as executor of decedent's estate, investigated the matter in question during the subsequent years, but could find nothing of any value. No part of the said $14,500 has ever been recovered.

OPINION.

TRUSSELL: Upon the record we are of the opinion that decedent had ascertained during 1920 that the debt in question became worthless, and, inasmuch as he kept no books, there could be no physical charge-off, but decedent's statement during 1920 that the amount could be forgotten was in effect a charge-off of the bad debt.

Judgment will be entered upon 15 days' notice, pursuant to Rule 50.

Considered by SMITH, LOVE, and LITTLETON.