Case Name: Appeal of LEO STEIN
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1926-09-25
Citations: 4 B.T.A. 1016
Docket Number: Docket No. 5734
Parties: Appeal of LEO STEIN.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 4
Pages: 1016–1017

Head Matter:
Appeal of LEO STEIN.
Docket No. 5734.
Decided September 25, 1926.
James L. Dohr, Esq., for the petitioner.
Arthur E. Murray, Esq., for the Commissioner.

Opinion:
OPINION.
MoReis:
The question is whether the petitioner may deduct in his income-tax return for 1919, as a bad debt, an amount of $36,302.85. We have held in the Appeal of Steele Cotton Mill Co., 1 B. T. A. 299, that before a taxpayer is entitled to take a deduction for a debt ascertained to be worthless, he must take reasonable steps to determine that there is no probability of payment or collection and have prima facie evidence to prove that the debt has no value. No such evidence was introduced in this appeal. All the testimony shows is that the petitioner made repeated demands between the years 1913 and 1919 for payment of the note, which were met by promises to pay the same as soon as the debtor was able. We -were not advised of the financial condition of the debtor other than that he was receiving a salary of $10,000.
The petitioner seems to rely upon the contention that the running of the statute of limitations in and of itself is an ascertainment of worthlessness. With this position wre can not agree. The statute of limitations does not destroy the debt, but is merely a defense to an action and must be affirmatively pleaded. In Maxwell v. Cottle, 25 N. Y. S. 635, 638, the court quoted from Hulbert v. Clark, 128 N. Y. 295; 28 N. E. 638, as follows:
The statute of limitations does not, after the prescribed period, destroy, discharge, or pay the debt, but it simply bars a remedy thereon. The debt and the obligation to pay the same remain, and the arbitrary bar of the statute alone stands in the way of the creditor seeking to compel payment. The legislature could repeal the statute of limitations, and then the- payment of a debt upon which the right of action was barred at the time of the repeal could be enforced by action, and the constitutional rights of the debtor are not invaded by such legislation.
The availability of a possible defense is not a sufficient ascertainment of worthlessness to justify a charge-off of a note as a bad debt.
Judgment for the Commissioner.