Court Opinion

ID: 4617540
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:36:47.060186+00
Date Added: 2024-06-11T07:55:19.186184
License: Public Domain

S. G. ARMSTRONG, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Armstrong v. CommissionerDocket No. 35096.United States Board of Tax Appeals24 B.T.A. 321; 1931 BTA LEXIS 1658; October 12, 1931, Promulgated *1658  Claimed deduction allowed (a) as a loss, since there is no evidence that the loss was sustained within the taxable year, or (b) as a bad debt, since there is no evidence that the debt was charged off within the taxable year.  Calvin Clarke, Esq., for the petitioner.  O. J. Tall, Esq., for the respondent.  SMITH *321  The Commissioner determined deficiencies in the petitioner's income tax as follows: 1922$4,624.4419231,805.99The petitioner's allegation of error regarding the determination for 1922 has been abandoned; for 1923 he alleges that the Commissioner "erred in refusing to allow as a deduction for the calendar year 1923, a loss of Eight Thousand Five Hundred Fifty Eight *322  Dollars Seventy Cents ($8,558.70) sustained in connection with the investment in the operation of a ranch at Cuates, New Mexico." FINDINGS OF FACT.  The petitioner is an individual residing at Cedar Rapids, Iowa.  On July 18, 1911, the petitioner and Guy Wood entered into an agreement by which the petitioner advanced the necessary funds for the purchase of livestock and Wood provided the "water, feed, pasture and necessary shelter" *1659  for the livestock, and that the two would engage in "the stock raising business on shares in New Mexico." On January 13, 1914, the petitioner and Wood changed their earlier agreement so as to give petitioner title to all of the livestock, and in the event the arrangement was terminated, the livestock disposed of, and the petitioner did not receive the full amount of his advances, he would have a claim against Wood for the amount of the difference.  In 1923 petitioner "discovered that Guy Wood had previously abandoned the ranch, disposed of all the livestock, and departed for parts unknown." Petitioner made advances and withdrawals in connection with the enterprise as follows: AdvancesMarch 1, 1911$500.00June 16, 1911500.00July 18, 1911600.00May 2, 1912500.00May 13, 19121,000.00October 24, 1912500.00November 30, 19122,000.00April 30, 19139,450.00June 20, 19131,260.00Total$16,310.00ReceiptsNovember 28, 19141,072.50November 22, 19155,694.00February 25, 1918984.807,751.30Net loss claimed8,558.70The Commissioner disallowed the claimed deduction of $8,558.70 from the petitioner's 1923*1660  income.  OPINION.  SMITH: Under certain conditions, individuals are permitted to deduct from gross income "losses sustained during the taxable year" *323  and "debts ascertained to be worthless and charged off within the taxable year." (See section 214(a)(5) and (7) of the Revenue Act of 1921).  The petitioner claimed the deduction of the difference between his advances to and his withdrawals from the enterprise with Wood as a loss on his 1923 income-tax return, but, on brief, argues for the allowance of this deduction as a bad debt.  In 1923 the petitioner discovered that Wood had previously abandoned the enterprise.  As and when Wood disposed of the petitioner's interest in the livestock, without accounting to petitioner therefor, the petitioner sustained a loss.  The respondent has determined that this loss was not sustained in the taxable year 1923, even though it was not until that year that the petitioner ascertained the fact.  The ascertainment of a loss within a taxable year is not the criterion imposed by the statute for a loss deduction.  Such deductions are allowable only in the year in which the loss is sustained.  See *1661 . Cf. ; affd., ; certiorari denied, ; ; ; . There is nothing to show that the petitioner did not sustain the loss in question prior to the taxable year before us, and upon this consideration of the claimed deduction we must approve the respondent's disallowance of same.  There is some merit to the argument that the deduction should be allowed as a bad debt, since the petitioner had a claim against Wood for the difference between the amount of petitioner's advances and the reimbursements in the event of a determination of the agreement.  Cf. . However, assuming but not deciding that the claimed deduction represented a bad debt which petitioner ascertained to be worthless within the taxable year 1923, we would still have to sustain the respondent's disallowance thereof, since there is nothing before us to show that this amount has ever been charged*1662  off by the petitioner.  As we said in , "both the ascertainment of the worthlessness of the debt and its charge-off within the same taxable year, are conditions precedent to its deduction." Cf. ; ; ; . The cases (; ; ; ) cited by petitioner are distinguishable in that there was a definite finding that the debt was charged off.  Judgment will be entered for the respondent.