Court Opinion

ID: 6886108
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:28:42.989166+00
Date Added: 2024-06-11T16:05:43.093814
License: Public Domain

MURRAH, Circuit Judge
(dissenting).
Bonds of the nature involved here are debts, and deductible as such when ascertained to be worthless under section 23 (k) (1) of the Revenue Act of 1938, 26 U.S.C.A. Int.Rev.Code § 23 (k) (1), and preceding acts. The statute prescribes no formula for ascertaining the worthlessness of a bad debt, or the year in which it becomes worthless. The taxpayer, in the first instance, is made the judge of the worthlessness of the debt. This court so held in Farmer v. Commissioner, 10 Cir., 126 F.2d 542.
A determination by the commissioner of internal revenue is presumptively correct, and findings of fact by the board, when supported by substantial evidence, is controlling here and we are authorized to modify or reverse only if it is not in accordance with law. Wilmington Trust Co. v. Helvering, 316 U.S. 164, 168, 62 S.Ct. 984, 86 L.Ed. 1352. But where, as here, there is no conflict in the evidence, the legal conclusions to be drawn therefrom present questions of law, and in this posture it becomes our province to ascertain whether the conclusions reached are in conformity with the statutory purpose. Farmer v. Commissioner, supra.
The commissioner offered no evidence concerning the year in which the bonds in question became worthless, neither did the board find in what year the bonds became worthless. It was content to hold that the bonds had no value after the year 1931. In that year, and until 1938, the parties interested in the railroad venture, including this taxpayer, owned valuable coal and timber lands which the railroad in question was intended to exploit by furnishing suitable and necessary transportation from the mines and timber lands, to other railway facilities. In 1931, the parties effected a reorganization of the venture, looking toward a recoupment of the bonded indebtedness by a per car charge for transportation over the railway, which at that time had been completed for a distance of seven miles. Of course the operation of the railroad and resultant revenues were dependent upon the operation of the coal mine and the exploitation of the timber lands. During the period in which the board has found that the bonds were worthless, the parties who owned them were, according to the evidence, making diligent efforts toward recoupment, and it cannot be said from the evidence adduced here that ordinary human insight and reasonable business experience would condemn the entire venture as a complete loss. See Jones Oil & Operating Co. v. Commissioner, 10 Cir., 114 F.2d 642.
In the determination of when value becomes extinct, and hence the debt worthless, courts should not substitute their judgment for the judgment of the investors, and this rule would seem to have greater force when the investor is denying worthlessness. Until 1938, the parties owned what appears from this record to be valuable coal and timber lands. If the mines were producing coal, or if the timber was being marketed, a revenue from the railroad was certain, and ascertainable with exactitude, depending only upon the number of cars hauled over the railroad. The railroad was indebted to another railroad in the sum of approximately $24,000, but it was subordinated to the payment of the bonded indebtedness. It was not until 1938, when foreclosure of the lands was imminent, and it was realized that the title to. the lands would pass from the investors, that the taxpayer ascertained that his investment was worthless.
I do not think the facts here justify a contra legal conclusion. I would sustain the *79judgment of the taxpayer and remand the case to the board to ascertain the cost basis to the taxpayer for purposes of deduction.