Court Opinion

ID: 4487294
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:00:41.118086+00
Date Added: 2024-06-11T07:58:36.802411
License: Public Domain

*353OPINION.
Korner:
The taxpayer contends that he is entitled to take as deductions from gross income on his personal return for the year 1922 certain items as follows: (a) A bad debt arising from loss of rents sustained by reason of his subletting his residence occasioned by his being required to make his residence in another city; (5) a bad debt arising from failure of his subtenants to pay gas, electric, and telephone bills during the period of their occupancy of the taxpayer’s residence as subtenants, which bills taxpayer was obliged to pay; (e) losses arising from theft during taxpayer’s absence in Europe, and (d) losses arising from theft of personal and household articles after taxpayer had resumed possession of his former residence.
We have held in the Appeal of Charles A. Collin, 1 B. T. A. 305, that a taxpayer who keeps his accounts on a cash receipts and disbursements basis may not deduct from gross income, as for a bad debt, an item of accrued interest which he had not at any time previously treated or reported as taxable income. There is no difference in principle between the interest item therein considered and the item of unpaid rents under consideration here. The reasoning set forth in the Appeal of Charles A. Collin, supra, is equally applicable here.
The liability of the taxpayer for the rent on his residence is a primary obligation. Such rent, when paid by him, is a personal expense and is not deductible from gross income. If he sublets his residence, the rent received by him constitutes income. If he accrues this rent and reports it as income and subsequently the rent is not collectible, he may properly take a deduction as for a bad debt. If he neither reports such rent as income nor collects it, then there is no justification for a deduction, because to allow a deduction under such circumstances would be, in effect, to permit him to deduct his own rent paid by him for his residence, which, as we have observed, is a personal expense and is not deductible.
What has been said above is equally applicable to the unpaid bills for gas, electricity, and telephone. The obligation on the part of his subtenant to pay these bills was in the nature of rentals due to the taxpayer from his subtenant. The same rule applicable to the rentals, referred to in the preceding paragraph, applies here.
When the taxpayer returned from France he discovered that certain of his personal and household effects, which had been stored in *354his residence during his absence, were missing. The circumstances surrounding their loss justify the conclusion that this loss was due to theft.
The Revenue Act of 1921, section 214 (a) (6), provides, in part:
Sec. 214(a). That in computing net income there shall be allowed as deductions :
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(6) Losses sustained during the taxable year of property not connected with the trade or business * * * if arising from * * * theft, and if not compensated for by insurance or otherwise. Losses allowed under paragraph * * * (6) of this subdivision shall be deductible as of the taxable year in which sustained unless, in order to clearly reflect the income, the loss should, in the opinion of the Commissioner, be accounted for as of a different period * * *.
We are of opinion that this loss by theft was sustained in the year 1921 and the opinion of the Commissioner that the income of the taxpayer is clearly reflected by accounting for this loss in that year, is approved. This loss is not properly deductible in the year 1922.
The only evidence in the record bearing on the last item of loss is the testimony of the taxpayer, as follows:
There were also further losses to the taxpayer during the calendar year 1922 by what was considered minor pilfering on the part of the maid- employed in the taxpayer’s house; although no sufficient information could be obtained to justify the actual accusing of the individual. The taxpayer estimated that $130 represented about one-half of the approximate total value to him of these missing articles and considered this a fair and just amount to list as a deduction to his income. No legal action was sought by the taxpayer in connection with any of these losses inasmuch as the man was in jail and the woman penniless. Realization on the debt was apparently impossible. It would also have been impossible to definitely place the responsibility of theft to any one individual.
We are of opinion that this evidence does not prove the allegation that this was a loss arising from theft and the deduction is therefore disallowed.