DocketNumber： Docket No. 32189.
Citation Numbers： 20 B.T.A. 1167, 1930 BTA LEXIS 1960
Judges： Matthews
Filed Date： 10/7/1930
Status： Precedential
Modified Date： 10/19/2024
*1960 Evidence
*1167 This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1924 in the amount of $922.28. The only issue presented is whether the respondent erred in refusing to allow as a deduction from gross income an alleged worthless debt in the sum of $8,500.
FINDINGS OF FACT.
In December, 1920, the petitioner purchased debenture notes of the Avery Co., paying therefor the sum of $10,000. The Avery Co. was a corporation located at Peoria, Ill., principally engaged in the manufacture and sale of farm and road-building machinery. On March 31, 1924, the Avery Co. was adjudicated a bankrupt and its affairs were placed in the hands of receivers.
In his income-tax return for the year 1924, the petitioner deducted from his gross income the sum of $8,500, representing the cost of the debenture notes purchased by him for $10,000, less a 15 per cent liquidating dividend received by him amounting*1961 to $1,500. This action was taken by the petitioner after his "confidential adviser" had been told by a man in the bond department of a bank which sold some of these notes that it was very doubtful whether there would be any more dividends. Some of the banks and bond houses which sold the notes in question saved their customers from loss by substituting different securities therefor, but the bank through which the petitioner purchased the notes refused to make any adjustment in favor of petitioner, although repeatedly requested to do so by petitioner's agent. The petitioner's agent endeavored to procure other securities from the bank to take the place of the Avery Co. notes in December, 1924, and continued this request throughout the years 1925, 1926, and 1927 and as late as 1929. He never received any definite promise that any loss sustained by the petitioner would be borne by the bank, although he was told that if the bank made enough money and could see its way clear to do it, such action might be taken.
*1168 The income-tax returns of the Avery Co. for the years 1924, 1925, and 1926, which were admitted in evidence by agreement of counsel in lieu of the books of the*1962 company, disclose that on November 30, 1924, the end of the fiscal year, the total assets of the company and its subsidiaries amounted to $7,130,869.11 and that its outstanding liabilities on that date amounted to $5,556,085.62. During that year the gross sales of the company were in the sum of $1,138,480.22 and in 1925 they amounted to $631,686.02. The property of the Avery Co. and its subsidiaries was disposed of through numerous private sales and at public auction. The plants and equipment at Peoria, Ill., where the main office was located, were sold on November 14, 1925, to Avery Power Machinery Co., a newly organized corporation.
Liquidating dividends on the debenture notes of the Avery Co. were paid by the trustee in bankruptcy as follows:
| Per cent | |
| Nov. 22, 1924 | 15 |
| Feb. 21, 1925 | 7 1/2 |
| May 2, 1925 | 7 1/2 |
| July 31, 1925 | 5 |
| Sept. 12, 1925 | 5 |
| Dec. 7, 1925 | 10 |
| Total | 35 |
| July 8, 1929, final liquidating dividend | 4.95 |
OPINION.
MATTHEWS: We are of the opinion that the evidence is not sufficient to show that the alleged bad debt was worthless or was ascertained to be worthless in 1924. *1963 The item of $8,500 appears to have been charged off because the petitioner thought that collection thereof was doubtful. The ascertainment of the worthlessness of a debt, either in whole or in part, is the exercise of sound business judgment based upon as complete information as is practically obtainable. As was said by the United States Circuit Court of Appeals for the Ninth Circuit in :
* * * But a debt cannot be written off as worthless merely because it is doubtful. Reasonable and intelligent effort must be made to determine its value, and the circumstances thus discovered must be such as reasonably to generate the belief that it is in fact worthless. * * *
The petitioner appears to have made no investigation of the assets of the Avery Co. The petitioner's agent testified that he was informed by the bank which handled the sale of the notes that further liquidating dividends would not likely be paid by the Avery Co. subsequent *1169 to the close of 1924, but there is no evidence as to any facts in the possession of the bank which would justify such a statement. Facts, not*1964 conclusions alone, must be presented to us, so that we can form an independent opinion on the question. ; ; ; ; . There is no satisfactory proof that the debt claimed as a deduction by the petitioner was ascertained to be worthless in 1924. The deficiency determined by the Commissioner is approved.