Lyon & Billard Co. v. Commissioner

LYON & BILLARD CO., INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Lyon & Billard Co. v. Commissioner

Docket Nos. 7486, 11380.

United States Board of Tax Appeals

9 B.T.A. 126; 1927 BTA LEXIS 2660;

November 15, 1927, Promulgated

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W. L. Harrison, Esq., and Reuben Pollowitz, C.P.A., for the petitioner.

A. R. Marrs, Esq., for the respondent.

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LOVE

These proceedings are for the redetermination of deficiencies, Docket No. 7486 for 1918, amounting to $931.12; Docket No. 11380 for 1920, amounting to $263.90. The petitioner in the latter proceeding also contains allegations relating to the year 1919, in which an overassessment was found by the Commissioner. The proceedings were consolidated upon agreement of counsel. The question in each case is, whether or not amounts originally allowed as bad debt deductions should be restored to income of the year in which deducted and excluded from income of the year in which collected.

FINDINGS OF FACT.

The petitioner is a Connecticut corporation with its office at Meriden.

It was petitioner's practice over a period of years to send to its attorney, near the close of each year, all accounts receivable which had been owing over six months and of which there was doubt concerning collectibility. At the same time, petitioner charged off the amounts thereof on its books to profit and loss. When these accounts were charged off, the only steps that had been taken to determine worthlessness were the sending of statements and the writing of letters to the debtors. The sums so charged off were deducted from gross income as worthless debts in petitioner's income-tax returns. If and when collections were made, the amounts thereof were included in income. This practice was in effect in 1916 and was followed in subsequent years at least to and including 1921.

The following amounts were charged off and deducted from income in pursuance of the practice referred to above:

1917	$9,613.37
1918	3,487.55
1919	2,126.96
1920	$4,545.50
1921	4,196.42

Of the amounts thus charged off prior to 1918, there was collected in 1918 and included in income $4,933.98; and in 1920 there was collected and included in income $2,462.36 of previous charge-offs. Some of these collections were made within a few days after being turned over to the attorney.

The Commissioner restored to petitioner's income for 1921 the amount set out above which had been charged off in that year, on the ground that the debts which it represented had not been ascertained to be worthless.

We find that petitioner deducted from income in 1918 for bad debts $3,487.55 and in 1920 $4,545.50, which had not then been ascertained to be worthless. It collected in 1918 and reported as income $4,933.98 and in 1920, $2,462.36, which had been deducted from income in other years as bad debts without the fact of worthlessness having been ascertained.

OPINION.

LOVE: We have not jurisdiction to redetermine petitioner's tax liability for the year 1919, since no deficiency was determined for that year. Revenue Act of 1926, section 274(g); .

It was petitioner's practice once a year to turn over to its attorney for collection all overdue and doubtful accounts. At the same time, the amounts would be charged off the books, and would be deducted from income in its income-tax returns as bad debts. When the debts thus charged off were collected, petitioner included them in income. The evidence shows that many of them were collected within a few days after being placed in the hands of its attorney, and we are satisfied that worthlessness had not been ascertained when the deductions were made. The Commissioner disallowed such deductions in 1921. The petitioner now seeks to have the deductions similarly made in the years 1918 and 1920 restored to income, and the sums collected in those years, which had been erroneously deducted in other years under the practice described, excluded from income in 1918 and 1920, respectively. The latter are the only years before us. We think the facts which we have found are clearly established by the evidence. and that the petitioner is entitled to have the adjustment which it asks made in the years in question.

Judgment will be entered on 15 days' notice, under Rule 50.

Considered by TRUSSELL, SMITH, AND LITTLETON.