The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1920-02-18
BAD DEBTS and
INCOME TAXES
COLLECTOR OF INTERNAL REV
ENUE CALLS ATTENTION TO
FEDERAL RULINGS IN VARIOUS
CASES

4
! Before making any deduction for
| bad debts on an income tax return,
! the tax payer should make sure that
! he is entitled to do so, and that the
! bad debts are of such nature that
they are clearly deductible items" de-
! clared Collector of Internal Revenue
| James NJ. Cathcart, yesterday.
/ Just because the personal income
! tax form provides spaces in which to
/ claim an allowance against income for
| uncollectable debts does not mean TIA Z
the tax payer may search his memory
for a flock of personal loans and put
| them down on his return.
The space in block A for bad debts
is for use only by business and pro-
fessional men who are entitled to adj
just their income, and such adjustment
can be made only in cases where GER
tain accounts have been included in the
gross income and have since, during
the taxable year, been found to be I'M
colIectible.
In other words, only those who
report their gross income on the ac-
crual basis, that is, include their en-
tires sales or charges, are entitled to
an adjustment to cover. sales or
charges that have been definitely
determined to be worthless. A
return on the basis of cash re-
ceipts and disbursements must not
show a deduction for worthless debts;
for the tax payer has shown an in
come only the accounts which have
proven to be good.
Arbitrarily writing down debts or
bills receivable is not tolerated by
income tax. Such anticipated losses,
iaI1 TI1o .Iolo
stitutes, are wholly contrary to the
spirit of the law. The individual debt
itself, together with the circumstances |
in respect to its becoming worthless, |
will alone be taken into consideration |
when determining whether it is de- |
ductible.
One other fact in respect to uncol- |
lectible accounts is emphasized by the |
internal revenue officials. That is that |
any bad debt charged off and later re- |
covered is taxable income for the |
year when recovery is made. |
Bad debts may arise. not only in
business or profession, but also
through bonds, notes, loans, mortgages
and other items of Indebtedness,
wherein the assets of the tax payer
sustain an actual determined loss. In
these latter items any actual losses
sustained by the individual may be
claimed as a deduction as item .,
block I, of his return.
Holders of bonds which have be-
come worthless because of dissolution
and utter bankruptcy of the issuing
corporation revealing no assets for
distribution to the bondholders are
Untitled to deduct the loss sustained.
i ae amount of such loss will be de-
IL mined by the actual cost; or, II
ea chased prior to March 1, 1913, the
fsssF market value on that date
IS to notes, loans, etc, which a
tax payer deems uncollectible, the
facts in each case will determine
whether they are proper deductions.
They must be ascertained to be worth
less and must be charged off as an
asset within the year. If debt is for
given it cannot be deducted, for 1t +
thus becomes a gift and such does
not constitute a deductible item.
In the case of a loan to a relative
or close personal friend, it's character
as a true debt must be proven, If any
deduction is claimed when it becomes
worthless.
worthless debts arising from un-
Daid wages, salaries, rents, or similar
items of income will not be allowed
as a deduction unless the income such
items represent has been included in
the return of the income for the year
in which the deduction as bad debt
is sought to be made or in previous
year For instance, a landlord cannot
claim an allowance for uncollectible
rents, unless such rents were included |
as income in his return for the year
when charged to his tenant"