The Glasgow courier. [volume] (Glasgow, Mont.) 1913-current, 1922-01-20


ing to information received by Divis
len Chief F. j. Buscher of the interna
revenue service from D. H. Blair, com
missioner of internal revenue al
Washington, D. c.
Provision is also made for a reason
able addition to a reserve for bat
debts and if satisfied that a debt is
recoverable only in part, the commits
sioner may allow such debt to bt
charged off in part.
This provision, effective for 1921, is
different from former years in that il
recognizes a reserve for bad debts and
allows a debt to be charged off in part
Bad debts may be treated either by
a deduction from income in respect to
debts ascertained to be worthless in
whole or in part Or by a deduction
from income of an addition to a re-
serve for bad debts. For the year
1921, taxpayers may elect either meth
cd, regardless of their previous prac-
tice, but will be required to continue
the use in later years of the method so
elected unless permission to change is
granted by the commissioner.
The commissioners instructions
read further:
Where all the surrounding and at
tending circumstances indicate that
the debt is worthless, either wholly or
in part, the part thereof which is
worthless and charged off or written
down to a nominal amount on the
books of the taxpayer shall be allowed
as a deduction in computing net in
come. There should accompany the
rteurn a statement showing the pro-
priety of any deduction claimed for
bad debts No deduction shall be al
lowed for the part of a debt ascer-
tanned to be worthless and charged off
prior to January 1, 1921, unless and
until the debt is ascertained to be to-
tally worthless and is finally charged
off or is charged down to a nominal
amount, or the loss is determined in
some other manner by a closed and
completed transaction.
Before a taxpayer may charge off
and deduct a debt in part he must as
certain and be able to demonstrate
with a reasonable degree of certainty
the amount thereof which is uncollect-
ible. Any amount subsequently receiv-
ed on account of a debt previously
charged off in whole or in part, and
allowed as a deduction for income tax
purposes, in excess Of the amount not
charged off, must be included in gross
income for the taxable year in which
received. In determining whether a
debt is worthless in whole or in part
the commissioner will consider all per-
tinent evidence, including the value of
the collateral, if any, securing the debt
and the financial condition of the
debtor. Partial deductions will! be al
lowed with respect to specific debts
only.
Taxpayers who have, prior to 1921,
maintained a reserve account for bad
debts may deduct a reasonable addi-
ton to such reserves in lieu of a de-
duction for specific bad debt items.
Taxpayers who have not Heretofore
maintained such reserve accounts may
now elect to do SO and in such case,
shall proceed to determine the amount
of the reserve that should reasonably
have been set up as at December 81,
1920 (which shall not be deducted in
computing net income), and in respect
of 1921 and subsequent years, may add
a reasonable addition to such reserve
and deduct the amount in computing
taxable net income.
Where a reserve account is main
tanned, debts ascertained to be worth
less in whole or in part should be
charged against the reserve and not
deducted from income. What consti-
tutes a reasonable addition to a re-
serve for bad debts must be deter
mined in the light of the facts and
will vary as between classes of bust
ness and with conditions of business
prosperity. A taxpayer using the re-
serve method should make a state
ment in his return showing the VOL
ume of his charge sales Tor other BUSH
ness transactions) for the year and
the percentage of the reserve to such
amount, the total amount of notes
and. accounts receivable at the begin
ming and close of the taxable year, and
the amount of the debts which have
been a~scertained to be wholly or par
tally worthless and charged against
the reserve account during the taxable
year.
Where banks or other corporations
which are subject to supervision by
federal authorities Tor by state au-
thorities maintaining substantially
equivalent standards) in obedience to
the specific orders or in accordance
with the general policy of such super
visory officers, charge off debts in
whole or in part, such debts shall, in
n absence of affirmative evidence
clearing. establishing the contrary, be
presumed, for income tax purposes, to
be worthless or recoverable onlv in
part, as the case may be. Accrued
interest may be included as part of
the deduction for bad debts only when
it has previously been returned as in
come.
"A taxpayer, other than a dealer in
securities, possessing debts evidenced
by bonds or other similar obligations.
deduct from gross income any
amount merely on accoun of market
fluctuation. Where p taynaver os,or