The Ocala evening star. [volume] (Ocala, Fla.) 1895-1943, 1920-02-18
BAD DEBTS AND
THE INCOME TAX

Before making any deduction for
bad debts on an income tax return, the
taxpayer 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" declared
Collector of Internal Revenue James
NJ. Cathcart today
"Just because the personal income
ta2 form provides spaces in which to
claim an allowance against income for
uncollectible debts does not mean that
the taxpayer may search his memory
for 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 ad-
just their income. And such adjust
ment can be made only in cases where
certain accounts have been included in
the gross income and have since, dur
ing the taxable year, been found TO
be uneollectable.
''In other words, only those who re-
port their gross income on the actual
basis, that is. include their entire sales
ment to cover sales or charges that
have been definitely determined to be
worthless. A return on the basis of
cash receipts and disbursements must
not show deduction for worthless
debts; for the taxpayer has shown as
income only the accounts which have
proven to be good.
Arbitrarily writing down debts or
bills receivable is not tolerated by in
come tax. Such anticipated losses,
which the reserve for bad debts con-
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.
zone other fact with respect to un-
collectible accounts is emphasized by
| The internal revenue officials. That is
| that any bad debts charged off and
| later recovered is taxable income for
the year when recovery is made.
Some Other Bad Debts
bad debts may arise, not only in
business or profession but also thru
bonds, notes, loans, mortgages and
other items of Indebtedness. wherein
the assets of the taxpayer sustain an
actual determined loss. In these lat
te- items any actual losses sustained
| by an individual may be claimed as a
deduction as Item 5, Block /. of his
return.-za--
Holders of boads which have be-
come worthless because or dissolution
and utter bankruptcy of the issuing
corporation revealing no assets for
distribution to the bondholders are
entitled to deduct the loss sustained.
The amount of such loss will be de-
termined by the actual cost, or. If pur-
chased prior to March /, 1913. the fair
market value on that date.
GAS TO notes. loans. ETC., which q
taxpayer 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 ar
asset within the year. If a debt is
forgiven it cannot be deducted, for il
thus becomes a gift and as such does
not constitute deductible item.
"In the case of 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 become!
worthless.
Worthless debts arising from un
paid wages. salaries, rents or similal
items of income will not be allowed al
deduction unless the income sucl
items represent has been included il
the return of income for the year IL
which the deduction as a bad debt i
sought to be made or in a previous
year, unless such rents were includes
as income in his return for the yea
: when charged to his tenant"