The Hawaiian star. [volume] (Honolulu [Oahu]) 1893-1912, 1904-03-24
THE TAX COURT
IS SUSTAINED
RULE FOR DEDUCT
ING BUSINESS LOSSES IN MAX
ING INCOME TAX RETURNS.

The Supreme Court yesterday rend-
cred a decision settling six appeals
from the Tax Court and sustaining that
court in all cases except as to an item
of $43.4O, which Brewer & Company de-
Quoted as a worthless debt in it's state
ment for 1908. The debt was clearly
worthless before the beginning of that
income tax year, says the court, and the
company had no right to hold it indef-
initely and write it off it's books arbi-
trarily at any time.
The opinions are by Chief Justice
Frear, and lay down the principle that
losses of capital must be deducted dur
ing the year during which they actually
are incurred, in making income state
ments. The cases decided are mostly
of bad debts, which the Tax Court al
lowed the firms interested to deduct and
on which the assessor took an appeal.
The following decision in the First
American Savings and Trust Company
gives the courts views of the law:
I'm the cases of the First American
Savings & Trust Co. and the. First
National Bank the losses were of $13,
9S1.47 and 1925 90 respectively on a
note of NJ, w. McChesney & Sons. This
was a demand note given in 1900. 1t
was for $4,000, divided into, $40, 900 and
$50, 900 between the two appellants in
respect of ownership. The loan was
made by them in the usual course Of
banking business. Interest was paid up
to January 81, 1902. In July, 1902, de-
fault was made in the payment of in
terest. The balance of the note, after
crediting the amount realized on the
collateral securities, which it seems the
holders of the notes bid in and which,
according to the testimony, were abso-
lutely worthless, was written off as a
total loss-all except $4,000 which was
retained on the books to be written off
the following year because the appel
lants did not wish to write off all in one
year. The testimony is that the whole
of the debt is bad-apparently because
of the failure of the Kona Sugar Co.,
certain bonds and stock in which were
the principal securities to the note, and
of M. w. McChesney & Sons, the agent
of the sugar company and makers of
the note. Such losses as these, not of
capital permanently invested, but of
loans made in the usual course of bank
ing business, would seem to be deducti-
BILE, provided they occurred during the
year in question, July l, 19O2-July 80,
! 1908, even under narrower statutes than
ours. See Lawless VS.. Sullivan and
Reds Brewery Co. VS.. Male, supra. In
our opinion, they are deductible under
our statute. They must, we think, be
taken to have become losses during the
| year in question. There was no default
in the payment Of interest until a
month after that year began. The tes-
timony seems to indicate that the bal
ance Of the note was considered at total
loss during that year and that must be
taken to have been the finding of the
Tax Appeal Court. There is no evil
dence that it was a loss before that
| year began, although the amount that
might be realized on it was uncertain"
Brewer & Company are sustained in
deducting a note Of the Kona Sugar
Company and McChesney for a balance
of $3,S4S.SS, which was written off the
books as a total loss, and 2. o. Hall &
Son are allowed debt Of the same par
ties amounting to $1O,82O6O. A dehcien-
cy in a foreclosure amounting to 1868. 90
is allowed to the Western & Hawaiian
Investment Company and Castle &
Cooke are allowed $26,2S3.19 balance
due the firm from the Hawaiian Auto
mobile Company and written off the
books as a worthless debt. The First
National Bank is sustained in deduct
ing $4,000 for depreciation in value Of
some bonds.
Robertson & Wilder appeared for the
Tax Assessor and W. A. Whiting ant