Jordan v. Commissioner

OPINION.

Smith:

The taxing statute permits the deduction from gross income in income-tax returns of an individual of—

(5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; * * *

(7) Debts ascertained to be worthless and charged off within the taxable year (or, in the discretion of the Commissioner, a reasonable addition to a reserve for bad debts) ; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt to be charged off in part. (Sec. 214(a), Rev. Act of 1921.)

The evidence is not clear as to whether the petitioner paid Howard the amount owing to him on the books of the brokers in 1921 or 1922. The record does not show the assets and liabilities of Cates & Co. as of the close of the year 1921. So far as anything that is before us is concerned, the petitioner might have expected that he would sustain no loss as a result of the insolvency of Cates & Co. beyond the loss upon the American Sumatra Tobacco Co. stock transaction. Apparently, there was no privity of contract between the brokerage company and the petitioner. The latter was not subrogated to Howard’s rights as a creditor of the brokerage company until he had paid Howard the amount of the credit standing in Howard’s name upon the broker’s books. As indicated above, we have no knowledge of whether this was in 1921 or 1922.

Judgment will be entered for the respondent.