Court Opinion

ID: 4595545
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:15:15.765131+00
Date Added: 2024-06-11T07:51:27.633729
License: Public Domain

WILLIAM H. CROCKER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Crocker v. CommissionerDocket No. 12365.United States Board of Tax Appeals14 B.T.A. 198; 1928 BTA LEXIS 3006; November 14, 1928, Promulgated 1928 BTA LEXIS 3006">*3006  Debts arose prior to March 1, 1913, and later were ascertained to be worthless.  Held, the basis for determining the amount deductible is the March 1, 1913, value of such debts.  Ayer v. Commissioner, 26 Fed.(2d) 547, followed.  Leon de Fremery, Esq., for the petitioner.  Granville S. Borden, Esq., for the respondent.  MARQUETTE 14 B.T.A. 198">*198  This proceeding is for the redetermination of a deficiency in income taxes asserted by the respondent for the year 1921.  The deficiency amounts to $70,050.19 and arises from a disallowance by the respondent of deductions claimed with respect to (1) capital stock of a liquidated corporation, and (2) debts evidenced by promissory notes given by the same corporation prior to March 1, 1913.  FINDINGS OF FACT.  The petitioner, during the years from 1899 to 1902, acquired all the shares of capital stock of the Modelo Oil Co., which was a California corporation.  The petitioner lent money to the Oil Company, taking its notes for the loans.  These loans reached an aggregate amount of $147,681.59 at some time, not stated, prior to March 1, 1913.  The Oil Company in 1921 sold all of its assets1928 BTA LEXIS 3006">*3007  for the net sum of $75,000, which sum was paid by the company to the petitioner and applied upon the indebtedness.  Some curtails of the notes had been made, so that at the time of its liquidation the company's indebtedness to the petitioner was $144,531.59.  14 B.T.A. 198">*199  The parties at the time of the hearing of this proceeding entered into the following stipulation: 1.  That in the event the Board should hold as a matter of law that, in the case of an indebtedness arising prior to March 1, 1913, the deduction allowed by section 214(a)(7) of the Revenue Act of 1921 is the full amount of the debt ascertained to be worthless and charged off in the taxable year, then in that event the deductible loss sustained by the petitioner in 1921 on the notes of the Modelo Oil Company upon liquidation of the corporation in 1921 was the sum of $69,231.59; 2.  That in the event the Board should hold that, in the case of an indebtedness arising prior to March 1, 1913, the deduction allowed by section 214(a)(7) of the Revenue Act of 1921 is limited by the March 1, 1913, value of the debt ascertained to be worthless and charged off in the taxable year, then in that event no deductible loss was1928 BTA LEXIS 3006">*3008  realized by the petitioner on the notes of the Modelo Oil Company upon liquidation of the corporation in 1921.  The claim as to loss on capital stock of the Oil Company was waived.  OPINION.  MARQUETTE: The sole question presented for our decision is this: Can the petitioner deduct the full amount of a debt, ascertained to be worthless and charged off in 1921, although that debt arose prior to March 1, 1913? The facts as above set forth bring this case squarely within the scope of the decision of the Court of Appeals of the District of Columbia in . In that case the court held that section 214(a)(7) of the Revenue Act of 1918, which allows as deductions from gross income "debts ascertained to be worthless and charged off within the taxable year," does not apply to debts which had accrued prior to March 1, 1913; but that, as to such debts, the governing section of the Revenue Act is 202(a)(1), which reads: That for the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, the basis shall be - (1) In the case of property acquired before1928 BTA LEXIS 3006">*3009  March 1, 1913, the fair market price or value of such property as of that date; * * * The Revenue Act of 1921, which controls the present proceeding, is identical with the 1918 Act, as respects worthless debts; with reference to the basis for determining profit or loss from the sale or other disposition of property acquired before March 1, 1913, the 1921 Act provides that the cost of such property shall be the basis; but it also provides, section 202(b)(2): If its fair market price or value as of March 1, 1913, is lower than such basis, the deductible loss is the excess of the fair market value as of March 1, 1913, over the amount realized therefor; * * * The 14 B.T.A. 198">*200  present petitioner has not produced any evidence to show the fair market value of the Oil Company's notes held by him, as of March 1, 1913; instead, he has stipulated, in effect, that those notes had no March 1, 1913, value greater than the total amounts paid to him by the Oil Company between that date and the time of the company's liquidation in 1921.  In view of this stipulation and of the decision of the Court of Appeals above cited, we must hold that the respondent's determinaton be allowed to stand.  1928 BTA LEXIS 3006">*3010  Reviewed by the Board.  Judgment will be entered for the respondent.