Robinson v. Commissioner , 15 B.T.A. 589 ( 1929 )

S. M. ROBINSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Robinson v. Commissioner

Docket No. 19035.

United States Board of Tax Appeals

15 B.T.A. 589; 1929 BTA LEXIS 2828;

February 25, 1929, Promulgated

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">*2828 Debts charged off in the taxable year not allowed as a deduction to petitioner in such year, when such debts were in fact worthless in a prior year.

George E. H. Goodner, Esq., for the petitioner.

R. Ritterbush, Esq., for the respondent.

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LITTLETON

">*589 The Commissioner determined a deficiency in income tax of $3,099.97 for 1922. He disallowed, as a deduction from gross income, ">*590 notes amounting in the aggregate to $10,675.62, claimed by the petitioner to have been ascertained and charged off as worthless in that year. This disallowance is the only error assigned.

FINDINGS OF FACT.

Petitioner is a resident of Lowell, N.C.

In 1889 he engaged in the merchantile business at McAdenville in partnership with J. R. Reid, under the firm name of J. R. Reid & Co. Their stock of goods was purchased on the credit of Robinson, Reid himself furnishing no capital. Petitioner owned individually a similar mercantile business at Lowell.

About 1900 petitioner sold to Reid an interest in his mercantile business at Lowell, the business there then being operated under the name of Robinson-Reid Co. The exact amount agreed to be paid by Reid, ">*2829 and when and how to be paid, is not fully disclosed by the evidence. Reid managed both businesses until about 1903, when petitioner sold to Reid his entire interest. Notes were given petitioner for his interests and a little later, about 1904, Reid paid $2,500 on his indebtedness to petitioner. The $2,500 so paid to petitioner were the proceeds from the sale of Reid's farm.

The notes held by petitioner against Reid and claimed as deductions as bad debts in his 1922 income-tax return were as follows:

Date of note	Due date	Amount
Nov. 5, 1903	22 months	$500.00
Nov. 5, 1903	21 months	500.00
Nov. 5, 1903	20 months	500.00
Sept. 13, 1904	90 days	400.00
July 22, 1907	1 day	4,100.00
Jan. 1, 1906	Demand	598.62
Aug. 1, 1906	Demand	416.31
Oct. 15, 1904	1 day	283.34
Apr. 15, 1904	12 months	500.00
Apr. 15, 1904	9 months	500.00
Apr. 15, 1904	6 months	500.00
Apr. 15, 1904	90 days	500.00
Mar. 21, 1905	1 day	1,227.35
Sept. 13, 1904	90 days	400.00
		10,925.62
Payment in 1918		250.00
Loss claimed in 1922		10,675.62

Two or three of the notes were indorsed by J. M. McLellan, who was for several years associated with Reid">*2830 in business, but his indorsement was of no value.

In 1916 Reid obtained a judgment for $250 against the debtor of the partnership which judgment was collected in 1918 and paid over to the petitioner. On November 18, 1918, the petitioner credited a pro rata portion of the $250 on each of the Reid notes held by him.

Petitioner and Reid were brothers-in-law. Reid at no time owned property of any substantial value. The entire value of what he did own when sold realized only $3,000, $2,500 of which was applied as heretofore stated on the purchase price of petitioner's interest in the mercantile businesses. The other $500 was derived from a sale of ">*591 his interest in his grandfather's estate and was paid to creditors in 1908. Petitioner upon a compromise settlement with his creditors effected in 1906 was unable to identify any of the notes claimed as a deduction by him as the notes given by Reid for the purchase price of the partnership interests. An undiscovered portion of the total amount of the notes held by petitioner and claimed as a deduction represents notes given by Reid to others which petitioner had endorsed and later had to pay.

About 1906 Reid became so">*2831 involved financially that in order to prevent his failure in business petitioner came to his relief and helped him effect a compromise settlement with his creditors (not including petitioner himself) of 70 cents on the dollar to be paid over a period of several years. After 1908 Reid never owned any property other than the stock of goods in his business, which was not worth any more than he owed for it. Reid has been insolvent since 1908. Although he continued in business he made no profits. Petitioner at no time pressed Reid for payment of any of the notes now claimed as bad debt deductions for 1922.

Reid sold out his mercantile business in 1922 to W. A. Bentley for $7,000 and applied the entire amount upon debts due his creditors, other than petitioner. The debt due petitioner by Reid represented by notes as hereinbefore set forth was wholly worthless prior to the taxable year 1922.

OPINION.

LITTLETON: The petitioner claims in his income-tax return for 1922 a deduction from gross income of $10,675.62, being the total amount of notes then held by him against J. R. Reid, which notes he asserts he ascertained in 1922 to be worthless and charged off in that year.

Petitioner">*2832 and Reid were brothers-in-law; petitioner apparently prosperous and successful in his business with a commendable desire and earnest determination to help in a most indulgent and generous way his brother-in-law, who had a large family, was unfortunate in business, had practically no property and was insolvent from about 1906.

In , we stated:

In order for the petitioner to be entitled to the deduction claimed it is incumbent upon him to introduce evidence to show that the indebtedness was ascertained to be worthless and charged off within the taxable year. There is no evidence that the debtor was in worse financial condition in 1921 than he was in years prior thereto. Nothing occurred during that year which would indicate that it was any more uncollectible at that time than in 1920 or at any period since 1914. The only evidence relating to the indebtedness, insofar as the year 1921 was concerned, was the charge-off. If the debtor had ">*592 no assets and could not pay the debt in 1914 or 1915, or in any other year prior to 1921, and that fact was ascertained by the petitioner, he was not permitted to wait until 1921 in order">*2833 to make the charge-off of the account where no additional facts were ascertained in 1921.

See, also, ; affd. .

We are of opinion that petitioner is not entitled to the deduction claimed in 1922.

Judgment will be entered for the respondent.