Joslyn Manufacturing & Supply Co. v. Commissioner

OPINION.

SteRNi-iageN :

The petitioner contends that in the calendar year 1920 the stock of the Southern Electric Supply Co. which it owned at a cost of $29,635.68 became worthless and was therefore deductible as a loss sustained in the taxable year. From the foregoing facts it is apparent that at the close of the year 1920 the financial and commercial position of the Southern Electric Supply Co. was valueless and hopeless. It had so far committed itself to purchases of materials at high prices that it had an inordinately inflated inventory on hand, much of which was of inferior quality and which could not be disposed of. Its financial statements showed that it was insolvent and a AUirification of this later disclosed that there was not during the year 1920 anything for the stockholders and no hope that anything would be left for them after liquidation. Not only were the officers bona fide convinced of the worthlessness of the venture, but the true condition of the business fully substantiated their judgment. The only reason why the petitioner continued any relations with the Southern Electric Supply Co. was its desire to bear its full share of the burdens of the mismanagement and misfortune of the company.

Some point was made at the hearing that the definite ascertainment of the worthlessness of the stock -was not until after the close of 1920, but as petitioner properly points out, the statute does not make the loss deduction dependent upon the time of ascertainment but rather upon the time when the loss is.truly sustained. Carl Muller, 4 B. T. A. 169. See also Henry M. Jones, 4 B. T. A. 1286. Furthermore, even if ascertainment wore necessary to support the deduction, it may fairly be said that such ascertainment occurred in 1920 a.nd that subsequently further investigation was made to determine the extent of the deficit and the demands upon the petitioner which the liquidation would make. This subsequent investigation corroborated the petitioner’s judgment of 1920. Upon this issue the Commissioner is reversed.

Judgment will be entered on 20 days' notice, under Rule SO.