Indiana daily times. [volume] (Indianapolis [Ind.]) 1914-1922, 1921-12-06
BANK WINS TAX
CASERELATING
TOBAD CLAIMS
Collects Lean Once Taken
From Books on Which
Agents Asked Taxes.

PHILADELPHIA, Dec. 6r-About
year ago revenue agents called at one OF
the large banks in this city to make
an examination Of that institutions tar
liability for the years 1917, 1913 and 1919
During the year 1918 1t had recovered
substantially $4,000 on account Of loan
which in 1912 it had written Of its books
as worthless.
II had not accounted for this item as
income. Regulations IS, article ~, at that
time included a sentence which reads as
follows: bad debts Of accounts charged
of because OF the fact that they were
determined to be worthless which are
subsequently recovered. whether or not
bv suit, constitute income Of the year
in which recovered regardless Of the
date when the amounts were charged
Of"
CLAIMS OF
REVENUE AGENTS.
In accordance with this ruling The
revenue agents held that the $4,000 was
subject to tax of the 1918 rates. Be
cause Of the high tax rate that year this
adjustment would have resulted in al
additional tax Of $4,000. The officers OF
the institution, however. insisted thai
the revenue agents should get authority
for extending their investigation to the
year 1912. Ultimately this authority was
granted.
The banks officers then argued that
the fact the debt was recovered proved
that it was not worthless in 1912, and
that, therefore, the bank was in erroI
IN charging off $4,000 that year. Ii
owed the Government, therefore, on AZ
count Of its error $500, or I per cent OF
the $4,000
CONVENTIONS OF
THE BANK.
The bank made one other contention
IN this matter which the writer believes
was thoroughly sound. 1t claimed that
eAA $4,000 was a part of its invested
24sitaI which did not appear on its
Books at the beginning of 1917 or 1918
and that. therefore. the tax for those
years should be recomputed by adding to
what had otherwise appeared as its In
vested capital this $4,000 item
Such addition in 1917 would make but
slight difference tn the bank IN the mat
ter Of its tax liability, as its earnings
were low. In 1918, when its earnings
were materially larger, such an addition
would result in an increased war pronts
tax credit Of 5000. The net result OF
such change would mean the refund OF
s3.52O instead Of an additional tax, as
DN the NS~--N7 -
In Nov. II Of this year the Commits
eioner Of internal revenue, with the ap-
rroval Of the Secretary Of the Treasury,
signed an amendment TO the above-men-
toned regulation, and It is now provided
that bad debts constitute taxable income
when subsequently recovered only II they
were charged OF after Feb IS 1slS-
RULINGS
OF COURT.
This decision Is In strict conformity
with rulings made by the Supreme Court
last spring, when the whole question OF
The tax on gains and the deductions for
losses az the time OF sale or other dis
position Of capital assets was thorough
" thrashed out.
As a corollary OF the revision In tne
regulation cited It would seem 70 oe
necessary for the department to hold
that the banks officials are right IN ne
claim that they have made that SooOO.
must be added to the invested capital
of their Institution for the years 1s1I
ad 1913. -
A decision on this point has not been
handed down. At any rate, the bank mas
saved the difference between taxing 49,
coo at s2.4 per cent and per cent, OF
$4,000. and may save a still further
Copyright, 1921 by Public Ledger
Company.