Court Opinion

ID: 4631822
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:10:27.382118+00
Date Added: 2024-06-11T08:00:06.113230
License: Public Domain

JOHN A. KRUEL AND HOUSTON F. KRUEL, EXECUTORS, ESTATE OF WILLIAM C. KRUEL, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Kruel v. CommissionerDocket No. 7987.United States Board of Tax Appeals12 B.T.A. 448; 1928 BTA LEXIS 3530; June 7, 1928, Promulgated *3530  Debts charged off in 1920 were ascertained to be worthless prior to that year and petitioner is not entitled to a deduction on account thereof in 1920.  Charles M. Scanlan, Esq., for the petitioners.  L. C. Mitchell, Esq., for the respondent.  TRAMMELL *448  This is a proceeding for the redetermination of a deficiency in income tax for the calendar year 1920 in the amount of $905.48.  The question involved is the deductibility of alleged bad debts and a loss claimed on account of stock in a corporation having become worthless.  FINDINGS OF FACT.  William C. Kruel, at the time of his death, resided in Milwaukee County, Wisconsin.  In 1905 he, together with Henry N. Brown, William Davy Thomas, and Ivan D. Mishoff incorporated the Tensleep Canal Co. for the purpose of operating a canal 29 miles long to irrigate a large tract of land along the Tensleep River in Wyoming.  Brown went to Wyoming and returned stating that a portion of the canal had been dug and that when the water was turned into it the water disappeared within a short distance as the ground was very porous.  His report caused Kruel to refuse to put up any further money and to make*3531  a thorough investigation.  While investigating Kruel accused Brown of peculating and Brown admitted that he took money amounting to $5,429.81, and on September 6, 1911, Brown made four promissory notes payable to Kruel in the amounts of $700, $1,323.81, $1,700 and $1,706, respectively, and put up as collateral security the shares of stock in the Tensleep Canal Co. which he had subscribed for.  All of these notes became due in 1913 and nothing had been paid on them.  On December 6, 1918, there were given, instead of the former four notes, new notes in the amounts of $1,004.50, $1,899.75, $2,439.50 and $2,448.11, all due December 6, 1919, and Brown again put up as collateral security his stock in the Tensleep Canal Co.  The shares of stock, however, were never actually issued.  The Tensleep Canal Co. had been granted certain rights and franchises for a canal to be built within a limited time and for the use of a certain flow of water.  Brown stated to Kruel that he could and would sell all of the rights of the Tensleep Canal Co. to a syndicate and then pay Kruel.  Brown, however, made several trips to *449  Chicago and Detroit for the purpose of making a sale but failed and*3532  gave it up.  The stock of Tensleep Canal Co. has had no value since the year 1906 and Brown had no other assets out of which the notes might have been paid.  The franchise to operate the canal became forfeited after five years and the assets of that company were worthless thereafter.  The notes were never paid and in 1920 Kruel charged them off as being worthless.  Kruel also purchased stock in the Senator Lead & Zinc Co. prior to 1918.  Prior to 1920 this stock became wholly worthless.  In 1920 Kruel charged it off and took a deduction in his income-tax return with respect thereto.  OPINION.  TRAMMELL: With respect to the debts which are claimed by the petitioner to have been ascertained to be worthless and charged off in 1920, the evidence is conclusive that these notes were worthless and were so ascertained prior to 1920.  The fact that they were charged off in 1920 does not entitle the petitioner to a deduction in his return for that year with respect thereto.  With respect to the stock of the Senator Lead & Zinc Co. there is no testimony as to the cost of the stock to the decedent or the amount which would be allowable as a deduction on account of the loss thereof in*3533  the event the Board should hold that the stock became worthless in 1920.  From the undisputed evidence before us, we are convinced that this stock became worthless prior to the taxable year 1920.  A deduction on account thereof, therefore, is not allowable in 1920.  Judgment will be entered for the respondent.