Court Opinion

ID: 6871623
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:01:58.39768+00
Date Added: 2024-06-11T16:05:25.168237
License: Public Domain

CHASE, Circuit Judge
(dissenting).
The question presented is not whether a deductible loss was sustained, for the proof, at best, shows only a debt ascertained to be worthless and charged off dur? ing the taxable year.
The right to a deduction on that basis is not only dependent upon the fact of worthlessness but upon the ascertainment of that fact followed by the charge-off. in the year for which the deduction is claimed. It is self-evident that where books are kept the statute requires that the item be charged off on the books. This does not mean that any particular form of entry is required, though a consistent method would serve to obviate doubt, but whatever is done should show that the taxpayer seeking the deduction had followed the ascertainment of worthlessness of the debt by some entry showing that.
This plaintiff used the unpaid balance of the debt to try to write up the cost of its Cuban stock in 1924 and that use of it continued for some years thereafter before there'was any attempt to take it as a deduction. Of course, if the debt was valueless when that attempt was made, the write-up added nothing to the cost of the Cuban stock which had already been determined by what had been done. Its actual cost was not changed by a book entry, and I make no point of any possibility of advantage to the plaintiff from having its basis on future sale wrongfully enhanced by the entry as made should its true nature remain undiscovered. But the attempt remains an undisputed fact, and its effect is not nullified by showing that it was a futile thing by way of a write-up, for it was real enough in its bearing upon whether or not the debt had been ascertained to be worthless.
If the entry did not accomplish its expressed purpose, it didn’t accomplish anything else of moment here, and leaves the plaintiff as it would have been had it not been made at all.
This is so because Congress made worthlessness, not uncollectibility, the underlying factor. The entry, whatever its form, must be in line with the ascertainment of worthlessness to be the charge-off required. This entry did, indeed, indicate that it had been ascertained that the debt could not be collected from the debtor, and were that enough to show worthlessness I would not disagree with the result. But Congress must be presumed to have chosen the word it meant to have given effect and due effect can’t be given to worthlessness without excluding any idea of value for any purpose. So the charge-off which must follow the ascertainment of worthlessness, no matter what its form, must in effect exclude the idea that the taxpayer still retains the item for its possible present or future advantage as events may transpire. As this entry was made in accordance with deliberate action by plaintiff’s board of directors, who should be given the credit for knowing how they then wanted the debt treated and shows that they did not then consider it of no value for any purpose, I cannot accept it as a charge-off for worthlessness. Far from being such a charge-off, it seems to me to be decisive evidence that during the taxable year the debt was not even ascertained to be worthless but was thought to be of value as part of the claimed cost of an asset.
I would affirm.