Court Opinion

ID: 4602990
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:30:59.671404+00
Date Added: 2024-06-11T07:52:46.143606
License: Public Domain

PUTNAM NATIONAL BANK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Putnam Nat'l Bank v. CommissionerDocket No. 30374.United States Board of Tax Appeals20 B.T.A. 45; 1930 BTA LEXIS 2206; June 13, 1930, Promulgated 1930 BTA LEXIS 2206">*2206  Amount collected by petitioner in 1925 under bonds partially charged off and allowed as a bad debt deduction in 1921 held to be taxable income in the year of payment.  Thomas B. Dowda, Esq., for the petitioner. A. H. Murray, Esq., for the respondent.  ARUNDELL20 B.T.A. 45">*45  Proceeding for the redetermination of a deficiency of $3,454.30 in income tax for the year 1925.  The issue is whether the sum of $18,000 collected by the petitioner in 1925 under bonds partly charged off in 1921 constitutes taxable income.  The facts were stipulated.  FINDINGS OF FACT.  The petitioner, a national bank organized under the laws of the United States, was actively engaged in the banking business during the years 1921 to 1925, inclusive.  In 1921 the Peninsular State Oil Co. was indebted to petitioner in the amount of $39,000, evidenced by promissory notes of the debtor.  The petitioner on August 21, 1921, accepted in lieu of the notes 39 bonds of the Peninsular State Oil Co., each in the face amount of $1,000.  The affairs of petitioner were examined by a national bank examiner a short time after it acquired the bonds, and as a result thereof he ordered all1930 BTA LEXIS 2206">*2207  of the bonds to be charged off.  Petitioner protested this action to the Comptroller of the Currency, with the result that the chief national bank examiner, Atlanta, Ga., ordered petitioner to write off 60 per cent of the fact value of the bonds, or $23,400.  On December 23, 1921, petitioner's directors voted to charge off 60 per cent of the face value of the bonds, pursuant to the instructions 20 B.T.A. 45">*46  of the chief national bank examiner, and on December 31, 1921, the amount of $23,400 was charged to profit and loss.  The amount so charged off was claimed as a deduction by petitioner in its return for 1921 and allowed by the respondent.  The face value of the bonds was subsequently paid as follows: 1922, $2,000; 1923, $3,000; 1924, $4,000; 1925, $30,000.  Sixty per cent of the amount collected by petitioner each year was credited on its books to profit and loss and reported as taxable income in its return for the respective years.  The amount reported for 1925 was $18,000, which sum the respondent held to be taxable income.  OPINION.  ARUNDELL: The petitioner contends that the bonds were not ascertained to be partially worthless in 1921, when 60 per cent of their face amount1930 BTA LEXIS 2206">*2208  was charged off, pursuant to instruction given by the chief national bank examiner, and consequently no allowable deduction accrued to it in that year either as a loss sustained or on account of a debt becoming worthless, and the sum recovered in 1925 does not therefore constitute taxable income.  The first question arising in one's mind in considering a question of this character is whether the charge-off was for a loss sustained or a worthless debt.  Nothing appears to show the basis for the deduction claimed by petitioner in its return for 1921, but in his opening statement at the hearing respondent's counsel said the amount was charged off as a bad debt and the parties are in agreement that the claimed deduction was allowed as a worthless debt.  Bonds of an undisclosed character were substituted for the notes.  Nothing was offered to establish whether or not the bonds were accepted by petitioner in complete settlement and satisfaction of the original indebtedness, and we can not from the record find the fact.  So far as the facts show, the notes were merely exchanged for the bonds and it was not intended that the transaction should in any way alter the original debtor and creditor1930 BTA LEXIS 2206">*2209  relationship.  The evidence warrants us, we believe, in approaching the case solely on the issue of the taxability of an amount recovered which was previously charged off as a bad debt and as such allowed by respondent.  Nothing was offered to show whether or not petitioner was warranted in making the charge-off.  The stipulated facts do not cover the matter of partial worthlessness in 1921.  That sums were collected in subsequent years does not, in and of itself, prove that part of the principal amount of the bonds was improperly charged off in 1921.  Nor does the fact that petitioner was induced to make the charge-off by reason of the insistence of a national bank examiner 20 B.T.A. 45">*47  serve to establish one way or another the question we are called upon to decide.  The facts as stipulated fall far short of establishing that the charge-off as made in 1921 was improper.  The respondent's action in taxing petitioner on $18,000, the amount recovered in 1925, is sustained.  ; affirming 1930 BTA LEXIS 2206">*2210 ; ; . Decision will be entered for the respondent.