Citation Numbers: 2 Or. Tax 498
Judges: EDWARD H. HOWELL, Judge.
Filed Date: 2/8/1967
Status: Precedential
Modified Date: 1/13/2023
Decision for defendant rendered February 8, 1967.
The issue in this case is whether the plaintiff is entitled to deduct the amount of a judgment as a bad debt under ORS
The defendant commission decided that the judgment arose out of a theft or embezzlement and consequently could not be the basis of a bad debt deduction but must be deducted as a loss under ORS
The plaintiff's position is that she has an uncollectible judgment; an uncollectible judgment is a bad debt within the meaning of ORS
1. This position is clearly untenable. The courts are entitled to and do look behind the judgment to determine if the facts qualify the deduction as a bad debt.
ORS
The federal courts have held that the judgment per se does not determine whether it is a deductible bad debt; it is the nature of the transaction underlying the judgment, not the judgment itself, that controls the tax effects. Iowa SouthernUtilities Co. v. U.S.,
If the rule were otherwise every uncollectible judgment, no matter what the source of the judgment, would automatically be deductible as a bad debt.
The defendant commission disallowed the deduction of the amount of the judgment on the grounds that the loss involved was the result of a theft or embezzlement perpetrated by plaintiff's former husband and must be deducted under ORS
2. The loss statutes and the bad debt statutes are mutually exclusive. Putnam et al v. Comm.,
3. The general rule is that an embezzlement may constitute a loss (under ORS
Unfortunately, in deciding whether plaintiff's judgment arose out of an embezzlement by her former husband the court must operate in a straitjacket as far as the facts are concerned. This is mostly the result of the plaintiff's reliance on the theory that an uncollectible judgment is per se a bad debt and that the court cannot look behind the judgment to determine the nature thereof.
The stipulation filed by the parties includes a copy of a complaint filed in Multnomah County Circuit Court with Frances S. Rutherford (the plaintiff herein) as plaintiff and Herbert P. Rutherford, as *Page 502 defendant. A second amended judgment between the same parties is also included.
Generally the facts gleaned from the complaint are: plaintiff and defendant were married in April, 1954; thereafter "for convenience of management" plaintiff transferred certain of her real and personal property to the joint ownership of herself and her husband; her husband wrongfully and fraudulently transferred portions of the property to his individual ownership or conveyed the property to third persons without her knowledge or consent. It is apparent from the complaint that substantial sums were involved. The plaintiff secured a judgment against the defendant for $31,038.17, which judgment also required the defendant to reconvey certain property to the plaintiff and declared plaintiff to be the owner of other described property. The opinion and order of the Tax Commission which was received into evidence found that Rutherford had "absconded to Mexico."
4. The crime of embezzlement is the fraudulent appropriation of property the possession of which has been entrusted to the defendant. State v. Tauscher,
It would appear from the complaint and judgment in the Multnomah County case and the complaint in the instant case that Rutherford fraudulently converted to his own use portions of Mrs. Rutherford's property, the possession of which had been entrusted *Page 503 to him for a special purpose. This resulted in a judgment of $31,038.17 against him. His actions also constituted embezzlement of portions of plaintiff's property.
The judgment secured by the plaintiff in this case arose out of an embezzlement. The tax commission is correct in its position that the amount of the judgment was deductible as a loss in 1960 under ORS
The order of the defendant commission is affirmed. Costs to neither party.
"(1) In computing net income there shall be allowed as deductions, losses sustained during the tax year and not compensated for by insurance or otherwise:
"* * * * *
"(c) Of property not connected with the trade or business, if arising from fire, storm, shipwreck or other casualty, or fromtheft.
"* * * * *
"(4) For purposes of subsection (1) of this section, any lossarising from theft or embezzlement shall be treated assustained during the tax year in which the taxpayer discoverssuch loss.
"* * * * *." (Emphasis supplied.)
Thomas v. Commissioner of Internal Revenue , 100 F.2d 408 ( 1938 )
United States v. Zelma T. Kyle and Betty K. Kyle , 242 F.2d 825 ( 1957 )
Iowa Southern Utilities Company v. The United States , 348 F.2d 492 ( 1965 )
Standard Oil Co. v. Commissioner of Internal Revenue , 129 F.2d 363 ( 1942 )
Douglas County Light & Water Co. v. Commissioner of Int. ... , 43 F.2d 904 ( 1930 )
State v. Tauscher , 227 Or. 1 ( 1961 )
Putnam v. Commissioner , 77 S. Ct. 175 ( 1956 )