Central Trust Co. v. Commissioner , 13 B.T.A. 924 ( 1928 )

CENTRAL TRUST CO., ADMINISTRATOR, ESTATE OF AZEL FORD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Central Trust Co. v. Commissioner

Docket No. 12505.

United States Board of Tax Appeals

13 B.T.A. 924; 1928 BTA LEXIS 3143;

October 11, 1928, Promulgated

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">*3143 The amount found due by an auditor appointed by an equity court held not deductible as a loss in the year in which the report was made in the absence of evidence showing that the report was approved by the appointing court or acquiesced in by the defendant, and where there is evidence tending to show that the liability was being contested and was compromised in a later year.

William S. Hammers, Esq., for the petitioner.

Leroy S. Hight, Esq., for the respondent.

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SIEFKIN

">*924 This is a proceeding for the redetermination of a deficiency in income taxes for the calendar year 1920 in the amount of $18,095.28, and results from the disallowance of the deduction of $67,626.54 as a loss sustained in 1920.

">*925 FINDINGS OF FACT.

The Central Trust Co. of Charleston, W. Va., is a corporation duly organized and existing under the laws of the State of West Virginia and is the duly appointed, qualified and acting administrator of the estate of Azel Ford, deceased. The petition in this proceeding was filed by Azel Ford, who died October 20, 1926. A motion to substitute the present petitioner was duly granted.

On his income-tax return">*3144 for 1920 Azel Ford deducted as a loss sustained in 1920, the sum of $67,626.54, being the amount of his liability to one L. D. George, as determined by the report of the auditor made October 15, 1920, pursuant to the decree of the Supreme Court of the District of Columbia, dated and filed June 29, 1917, in a suit entitled L. D. George v. Azel Ford, No. 28979, equity. The court adjudged the decree, in its decree of June 29, 1917, that the defendant, Ford, as the agent of the plaintiff, was accountable for the proceeds of certain shares of stock and interests in corporations. The action was based upon fraud and deceit on behalf of the defendant Ford. The auditor found and reported to the court on October 15, 1920, that the total amount of money for which Ford was accountable to George was $67,626.54. In the year 1921 a supplemental account was rendered against Ford in an additional amount of $63,145.09. In 1922 the judgments were satisfied by a compromise payment of $85,000 plus $3,800 legal fees.

Azel Ford was engaged in a number of business enterprises and had large investments therein, kept a book record of his various operations and transactions, and the method of">*3145 accounting regularly employed by him in the keeping of his books and the basis upon which his income-tax returns for the year 1920 and prior years were rendered was the accrual method. In December, 1920, the decedent, Azel Ford, entered in his ledger as an accrued liability an item of $67,626.54, being the amount which the Supreme Court auditor, in his report of October 15, 1920, found owing by Ford to L. D. George.

The decedent, Azel Ford, deducted the said amount of $67,626.54 in his income-tax return for the year 1920 as a loss sustained in that year. The respondent disallowed such deduction and determined the deficiency involved herein

OPINION.

SIEFKIN: The sole question in this proceeding relates to the time that a deduction for a loss may be taken when such loss is in litigation. The decedent deducted the amount of $67,626.54 in 1920 because in that year he placed that sum on his books as a liability, the ">*926 amount having been determined by the auditor appointed by the court. It is not shown, however, that he did not continue to contest the liability or that the report of the auditor prior to approval or acceptance by the appointing court became binding upon">*3146 him. On the contrary, it appears that the proceeding was kept open through 1921 (in which year an additional amount was found due from him) and into 1922, when the decedent compromised liabilities found by the auditor in the total amount of $120,771.63, by the payment of $85,000 and $3,800 legal fees. We conclude that the respondent properly denied the deduction for 1920. See ; ; ; ; .

Judgment will be entered for the respondent.