The Abbeville press and banner. [volume] (Abbeville, S.C.) 1869-1924, 1920-02-20
BAD DEBTS.
Before making any deduction for

pad QeDCS on al llcoHle iIdh leIllIS,
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.
Just because the personal income
tax 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 a flock Of personal loans
and put them down on his return
4! The space is block A for Bad debts
is for use only by business and pro-
ifessional men who are entitled to ad-
lust their income, and such adjust
ments can be made only in cases
where certain accounts have been in
cluded in the gross income and have
since, during the taxable year, been
found to be uncollectible.
In other words, only those who re-
port their gross income on the ac-
crual basis, that is, include their en-
tire sales or charges, are entitled to
an adjustment to cover sales or
charges that have been definitely de-
termined to be worthless. A return
on the basis of cash receipts and dis
bursements must not show deduc-
tion for WORTHLESS debts; for the tax
payer has shown as income only the
accounts which have proved to be
good.
i Arbitrarily writing down" debts
or bills receivable is not tolerated by
Income 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 circum-
stances in respect to it's becoming
worthless, will alone be taken into
consideration when determining
it rs deductible.
One other fact with respect to un-
collectible accounts is emphasized by
the Internal Revenue Officials that
is, that any bad debt charged off and
later recovered is taxable income for
! the year when recovery is ma de.
! Some Other Bad Debts.
! Bad debts may arise not only in a
business or profession bit also
! through bonds, notes, loans, mort
cages and other items of ind abtness,
wherein the assets of the taxpayer
isutain an actual determined loss. In
these latter items, any actual losses
sustained by an individual may be
claimed as a deduction as Item s.,
Block l, of his return.
Holders of bonds which have be-
come worthless because of dissolu-
tion and utter bankruptcy of the IS
suing corporation revealing no assets
for ditribution to the, bondholders
are entitled to deduct the loss sus-
tanned. The amount of such loss will
be determined by the actual cost; or,
if purchased prior to March l, 1913,
, the fair market value on that date.
AS to notes, loans, etc., which a
taxpayer deems uncollectible, the
facts in each case will determine
whether they are proper deductions.
They must be ascertained to be
worthless and must be charged off as
an asset within the year. If a debt is
forgiven it cannot be deducted, for
it thus becomes a gift and as such
does not constitute a deductible item.
In the case of loan to relative
or close personal friend,its character
as true debt must be proven, if any
deduction is claimed when it becomes
worthless. Worthless debts arising
from unpaid wages, salaries, rents, OF
similar items of income will not be al
lowed as a deduction unless the in
come such items represent has been
included in the return of income for
the year in which the deduction as d
bad debt is sought to bemade or in i;
previous year. For instance, a land
lord cannot claim an allowance for
uncollectible rents, unless such rents
were included as income in his re-
turn for the year when charged to his
tenant.