Court Opinion

ID: 4635009
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:17:13.357581+00
Date Added: 2024-06-11T08:00:05.131126
License: Public Domain

NATIONAL CITY BANK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.National City Bank v. CommissionerDocket No. 8928.United States Board of Tax Appeals11 B.T.A. 699; 1928 BTA LEXIS 3740; April 19, 1928, Promulgated *3740  Deductions claimed on account of certain losses disallowed.  Justin D. Bowersock, Esq., for the petitioner.  P. M. Clark, Esq., for the respondent.  LANSDON *699  The respondent has asserted a deficiency in income tax for the period from January 1, 1919, to May 31, 1919, in the amount of $1,332.50.  The petitioner alleges for its cause of action that it is entitled to deduct the amount of certain notes from its gross income for the taxable period, and avers that at May 31, 1919, such notes were worthless.  FINDINGS OF FACT.  During the taxable period here involved the petitioner was engaged in the general banking business in Kansas City, Mo., under the provisions of the National Banking Acts.  On May 31, 1919, in conformity with the National Banking statutes and with the approval of the Comptroller of the Currency, it was consolidated or merged with the Fidelity National Bank & Trust Co., of Kansas City, Mo.Under the terms of the consolidation agreement, the petitioner transferred to the bank created by the merger assets in an amount sufficient to cover its liabilities to its stockholders and depositors.  Assets, in excess of such liabilities, *3741  were turned over to trustees for liquidation and distribution to the stockholders of the petitioner in the amount of $365,102.97.  Under the terms of the consolidation agreement, the Fidelity National Bank & Trust Co. returned to the petitioner, within 90 days of the date of consolidation, notes in the amount of $37,315.92, as worthless and uncollectible.  Notes due the petitioner in the amount of $11,500, which were transferred to the trustees at the date of consolidation, were ascertained to be worthless at some time not disclosed by the evidence.  OPINION.  LANSDON: The petitioner claims the right to deduct from its gross income for the taxable period the amounts of $11,500 and $37,315.92, representing notes ascertained to be worthless as losses sustained tn such period.  It makes as alternative contentions in respect thereof: First, that the total of these amounts was a loss sustained, or, second, that the notes were ascertained to be worthless, and charged off in *700  the taxable period, in effect, by the closing of its books on May 31, 1919, Petitioner's counsel argues that as a bank is engaged in dealing in money and securities, a loss occurs whenever an uncollectible*3742  loan is made and not at the date when the note evidencing such loan is ascertained to be uncollectible.  We do not agree with this contention.  When a bank loans money on a note, a debt is created, and any loss sustained therefrom is of the date when such debt is ascertained to be worthless.  The evidence in support of the petitioner's alternative contentions is not convincing.  All the notes in question were included in the petitioner's assets as of May 31, 1919.  There is no evidence as to when any of these notes were made or due or whether any part of them was known to be worthless at the date of the merger.  There is ample evidence that all such notes were later ascertained to be worthless; but that fact does not establish worthlessness at May 31, 1919.  The law provides not only that worthlessness must be ascertained, but that a charge-off must be made in the taxable year or period.  The petitioner concedes that no charge-off as worthless was made on its books in the taxable period, but contends that the closing of its books on the transfer of its assets to the Fidelity National Bank & Trust Co. and to trustees complies with this statutory provision.  Even if this contention*3743  was admitted as proved, it is not material, since the record shows that the notes were not ascertained to be worthless at May 31, 1919.  Reviewed by the Board.  Judgment will be entered for the respondent.