Case Name: Appeal of FEDERAL FUEL CO.
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1926-02-17
Citations: 3 B.T.A. 814
Docket Number: Docket No. 1865
Parties: Appeal of FEDERAL FUEL CO.
Judges: Before Phillips and Tkammell.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 3
Pages: 814–816

Head Matter:
Appeal of FEDERAL FUEL CO.
Docket No. 1865.
Submitted October 8, 1925.
Decided February 17, 1926.
James G. Marks, Esq., for the taxpayer.
A. E. Murray, Esq., for the Commissioner.
Before Phillips and Tkammell.

Opinion:
OPINION.
Trammell : We have held that before a deduction can be allowed on account of a debt ascertained to be worthless and charged off there must first be a debt. Appeal of Luke & Fleming, Inc., 1 B. T. A. 12; Appeal of Louis Titus, 2 B. T. A. 754. In this appeal any amount due by Hoffberger & Co. was at all times collectible. It is not intimated that they were not financially responsible and able to pay the amount. They denied owing the taxpayer anything, and claimed that the taxpayer owed them damages in excess of the amount. This appears to have been the only reason that the claim was not paid in full in 1919, when the controversy arose. It is true that in 1921 Hoffberger & Co. did pay one-fourth of the amount to the taxpayer in settlement of the claim.
If the debtor was not legally liable to the taxpayer, then there was no debt to become worthless. It can not become worthless because of inability to establish legally the liability for the debt, for in such a case there is not an ascertainment of worthlessness of an existing debt, but an ascertainment of the nonexistence of such a debt. Appeal of Luke & Fleming, Inc., supra.
If the taxpayer sustained a loss from the transaction, such loss is deductible only in the year in which the loss is sustained. It is sufficient for the purposes of this appeal to say that the loss was not sustained in 1920.