Lincoln Drug Co. v. Commissioner

Appeal of LINCOLN DRUG CO.

Lincoln Drug Co. v. Commissioner

Docket No. 1403.

United States Board of Tax Appeals

1 B.T.A. 809; 1925 BTA LEXIS 2782;

March 18, 1925, decided Submitted February 18, 1925.

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Louis J. Gregorson, C.P.A., for the taxpayer.

Willis D. Nance, Esq., for the Commissioner.

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Before JAMES and TRUSSELL.

This appeal is from a proposed additional assessment of income and profits taxes for the year 1919 in the amount of $3,871.62. Of this sum only the amount of $2,319.24, resulting from the disallowance by the Commissioner of certain items charged off as bad debts, is in dispute. From the facts set forth in the petition, all of which are admitted by the answer of the Commissioner, the Board makes the following

FINDINGS OF FACT.

The taxpayer, a Nebraska corporation, is engaged in the wholesale drug business at Lincoln, Nebr., and has been so engaged since incorporation in 1897. In 1919 its common stock was owned entirely by Aaron S. Raymond and his immediate family. Out of the 1,000 shares of common stock, Aaron Raymond owned 793 shares and his daughter, Mrs. Ruth Raymond Gavin, owned 22 shares.

Prior to August 1, 1916, the taxpayer sold merchandise to the Purity Drug Co., of Concordia, Kans., and the Purity Drug Co., of Clay Center, Kans., both of which companies were incorporated, all of the common stock of both being owned by J. E. Gavin, of Lincoln, Nebr., who is now in the employ of the taxpayer as a department manager. On August 1, 1916, the taxpayer accepted in payment of merchandise sold to the Purity Drug Co., of Concordia, Kans., and the Purity Drug Co., of Clay Center, Kans., notes in the amount of $4,000 and $3,750, respectively. The first-mentioned note was unpaid at August 1, 1919, and the maker of the note, the Purity Drug Co., of Concordia, was indebted to the taxpayer on open account for merchandise in the amount of $7,633.36. On this date the Purity Drug Co., of Concordia, Kans., paid $2,500 on the $4,000 note and gave a new note in payment of the open account of $7,633.36. This last-mentioned note remains unpaid at the present time. After accepting this note, August 1, 1919, in payment of the open account, the taxpayer opened another account and sold and continues to sell on open account to the Purity Drug Co., of Concordia, Kans., up to the present time. The taxpayer charged off as a bad debt in 1919 $1,500, representing the unpaid balance of the $4,000.

On August 1, 1919, the Purity Drug Co., of Clay Center, Kans., was indebted to the taxpayer for a note in the amount of $3,750 and on the open account in the amount of $6,931.42. On that date the maker of the note paid $1,000 thereon and gave a new note in payment of the open account of $6,931.42. The taxpayer charged off as a bad debt in 1919 the amount of $2,750, which represents the difference between the full amount of the note, $3,750, and the payment made thereon, $1,000. The note of $6,931.42 remains unpaid at the present time. After accepting this note on October 1, 1919, in payment of the open account, the taxpayer opened another account with the Purity Drug Co., of Clay Center, Kans., and sold and continues to sell on open account to this company up to the present time.

The taxpayer's records show sales of merchandise to the two corporations in the following amounts, approximately:

	Purity Drug Company
Year	Clay Center	Concordia
1915	$8,204.00	$5,179.00
1916	6,196.00	6,600.00
1917	3,400.00	6,000.00
1918	4,564.00	4,026.00
1919	5,664.00	6,754.00
Total	28,028.00	28,559.00
1920	$4,535.00	$5,200.00
1921	2,630.00	6,252.00
Total	35,193.00	40,011.00

Sales years 1915 to 1919, inclusive:

Clay Center	$28,028.00
Concordia	28,559.00
Total	56,587.00

DECISION.

The above facts are not sufficient to establish "debts ascertained to be worthless" and the determination of the Commissioner is approved.