Gardiner v. Commissioner

OPINION.

Maequette :

The first question presented by the record in this proceeding is whether the petitioner is entitled to any deduction in computing its net income for the year 1919 on account of the lasts and patterns discarded by it in that year as obsolete and worthless. All the material allegations of the petition are denied by the respondent in his answer, and the only evidence presented was the testimony of H. K. Gardiner, organizer and former owner of the petitioner, contained in a deposition. His testimony is to the effect that the petitioner purchased the assets of a going business; that among these assets were lasts and patterns which were found to be defective and worthless, and that “ two double horse truck loads ” were discarded in the year 1919 as obsolete or worthless. Some of the lasts and patterns included in the assets purchased were not discarded, however, but were retained and used in 1920. There is no testimony or other evidence to show what the petitioner paid for the lasts and patterns in question. When they were discarded Gardiner “ estimated what they cost me,” and the estimated amount was claimed as a deduction. The petitioner no doubt discarded certain lasts and patterns and is entitled to deduct their cost from gross income for the year in which they were discarded if the cost can be ascertained, but since there is no evidence as to their cost we can only affirm the action of the respondent in disallowing the deduction claimed.

With reference to the deduction to which the petitioner alleges it is entitled on account of certain debts charged off as worthless in the year 1919, the testimony shows that the firm of O’Connor Brothers was indebted to the petitioner at the close of the year 1919; that the firm was in bad financial condition, and that the debt was charged off at that time. Gardiner testified that O’Connor Brothers had practically failed in the year 1919 and could not pay its bills; that the debt due the petitioner was ascertained to be worthless and was charged off by it at the end of 1919; that O’Connor Brothers did fail in 1920, and that the petitioner in that year was paid a small amount on its account. The evidence is sufficient to show that the debt was ascertained to be worthless and was charged off within the taxable year. We are of the opinion that the petitioner had reasonable grounds for such action, and that it is properly allowable as a deduction from gross income in that year.

No evidence was introduced as to the other error alleged by the petitioner.

Judgment will be entered on 15 days’ notice, under Bule 50.

Considered by Phillips, Millikun, and Van Fossan.